Virginia begins official withdrawal from regional carbon market

Virginia’s State Air Pollution Control Board officially began the process of withdrawing Virginia from a regional carbon market by regulation following guidance from the attorney general’s office, but critics maintain the move isn’t legal.

On Wednesday, the board voted 4-1 with two abstentions to repeal state regulations governing its participation in the Regional Greenhouse Gas Initiative. 

Four air board members appointed by Republican Gov. Glenn Youngkin — Chairman James Patrick Guy II, Russell B. Mait, Jay Holloway and David Hudgins — voted in favor of the move. Two appointees of former Democratic Gov. Ralph Northam, Hope Cupit and Lornel Tompkins, abstained, while a third, Staci Rijal, was the lone opponent.

Virginia began participating in RGGI following passage of the Democrat-backed Clean Energy and Community Flood Preparedness Act of 2020. As a participant, Virginia power producers must buy allowances for each metric ton of carbon they emit, with the number of allowances available for purchase at auction declining every year.

The four board members who voted in favor of repealing the regulations governing Virginia’s participation said the administration has the authority to implement regulations, the fees electricity customers pay are a hidden tax and carbon emissions will continue to reduce statewide even without RGGI. 

But Cupit and Tompkins said they were unsure of the legality.

At the meeting Wednesday, Senior Assistant Attorney General Ross Phillips said the air board has the authority to accept the regulation repealing Virginia’s participation. 

Secretary of Natural and Historic Resources Travis Voyles also stated that the language of the 2020 law does not require Virginia to participate in RGGI. Instead, the bill says the Director of the Department of Environmental Quality is “authorized to establish, implement, and manage an auction program to sell allowances into a market-based trading program.” 

Cupit said she did “not agree with the AG’s assessment.” 

In April, Cupit said during an air board meeting that she had received an opinion from the attorney general’s office indicating that removing the state from RGGI is not a responsibility of the board but instead falls under the authority of the General Assembly.  A judge last week upheld the attorney general’s right to withhold the opinion from the public despite a Freedom of Information Act request.

Southern Environmental Law Center Senior Attorney Nate Benforado noted the attorney general’s office under former Democratic Attorney General Mark Herring previously argued that the law requires the state to participate in RGGI during a legal challenge by the Virginia Manufacturers Association. 

In response to the legal challenge, the attorney general’s office said state law mandates that the director of the Department of Environmental Quality “shall” seek to sell allowances though the allowance auction. 

Later, in a separate formal opinion, Herring said “the governor may not repeal or eliminate, through an executive order or other action, the enacted statutes and regulations pertaining to the Commonwealth’s participation in the Regional Greenhouse Gas Initiative.” 

“I want to hear an explanation for what has changed,” said Benforado, who insisted Virginia’s participation in RGGI “is not for the air board to decide.” 

Victoria LaCivita, a spokesperson for the office of Republican Attorney General Jason Miyares, declined to comment on the shift in stance.

Funding for climate change

RGGI works by setting a limit on the number of carbon emissions that energy producers can emit and then auctioning off allowances for each ton of carbon emitted. The funds are then returned to participating states. 

In Virginia, state law requires 50% of the proceeds to go toward low-income energy efficiency projects and 45% to the Community Flood Preparedness Fund, which gives grants to communities and local governments for flood resiliency work. To date, $452 million has flowed to those programs.

But Voyles reiterated Wednesday that he believes the market is a “bad deal” for Virginia because the proceeds the state receives from the auctions are not returned to electric ratepayers. 

Dominion Energy, the state’s largest electric utility, has suspended its charge on customer bills to recoup the costs of participation in anticipation of Virginia’s withdrawal from RGGI. The utility has stated participation in RGGI will cost ratepayers between $1 billion and $1.2 billion over the next four years. 

“There’s a need to change the status quo,” Voyles said.

Cupit, Tompkins and Rijal questioned Voyles on where the funds to replace RGGI proceeds will come from, particularly given the difficulty of obtaining regular funds from the General Assembly.

“Those dollars are very precious,” Cupit said. “We all fight for them.”

Voyles declined several times to say exactly where the replacement revenues may come from, saying details will be unveiled in the governor’s budget proposal. 

The funding for the Flood Food and energy efficiency programs goes to needs across the state, he added, and there is support in the General Assembly for long-term investments into them.

But Democratic Sen. Jeremy McPike, D-Prince William, told the Mercury any discussion on replacement revenues is a nonstarter for Senate Democrats since there’s no need to withdraw from RGGI and doing so would require legislative action.

“Climate change is too important,” McPike said.

Regulatory process

With Wednesday’s adoption, the proposed regulation moves to an executive review that involves the Department of Planning and Budget, Voyles, the Office of Regulatory Management and the governor. 

It will then be published in the Virginia Register, which begins a 60-day comment period that is followed by the board’s final adoption of the regulation in 2023. It will then become effective 30 days after publication in the Virginia Register again.

The goal is to have the withdrawal finalized by the end of 2023, when Virginia’s three-year contract to participate ends, said Voyles. 

Roughly 730 comments against RGGI withdrawal have been sent to the state, with 51 in favor, Voyles said.