Manufacturers seek to block Virginia from joining carbon market in lawsuit

The Virginia Manufacturers Association is suing Virginia’s Department of Environmental Quality and State Air Pollution Control Board over the state’s revision of regulations that will allow it to join a regional cap-and-invest market for carbon.

The suit, filed in Richmond Circuit Court Oct. 2, says DEQ followed an incorrect process in revising an existing carbon trading rule as well as claiming the new rule is “unlawful” and the association’s members will be adversely affected by it. 

“The Revised Trading Rule harms VMA’s organizational interests to create the best business environment for businesses to have maximum productivity and profitability,” the suit reads. “The rule will place Virginia business at a significant disadvantage due to increased electricity costs resulting from the revision and causing businesses to expend extensive compliance costs and resource expenditures.” 

The complaint centers on a decision by the Democrat-led General Assembly during the 2020 regular session to bring Virginia into the Regional Greenhouse Gas Initiative. 

Under RGGI, which includes 10 other states in New England and the Mid-Atlantic, states cap carbon emissions and auction off allowances to emitters like electric plants and large manufacturers. Revenues are then invested in clean energy and emissions mitigation efforts. 

In Virginia, the law authorizing the state’s participation in RGGI — known as the Clean Energy and Community Flood Preparedness Act — directs that 45 percent of all auction proceeds go toward assisting localities and residents affected by recurrent flooding and sea level rise and 52 percent go toward low-income energy efficiency programs. (The remaining 3 percent is earmarked for administrative costs.) 

Virginia first sought to join RGGI in 2018, when DEQ proposed its initial rule governing the state’s participation in the cap-and-invest program. But because the General Assembly legally must approve any exchange of state monies and the rule was drafted before such approval, the department developed a complicated system in which the state would distribute carbon allowances to emitters, who would then sell them into the market and buy back only what they needed. 

The Clean Energy and Community Flood Preparedness Act ordered DEQ to incorporate the law’s provisions authorizing Virginia’s participation in a carbon market into the existing rule “without further action by the board.” It also said that such incorporation be considered exempt from the requirements of the Administrative Process Act, which outlines the lengthy legal process new and revised regulations have to undergo before taking effect.

But the Virginia Manufacturers Association argues that the revisions to the proposed rule went beyond what the law allowed and “wrongfully broadened the statutory exemption.” 

“DEQ gutted and revamped the Original Trading Rule from a consignment to a full auction program,” the VMA suit alleges. 

Furthermore, the organization says, the new rule “imposes a hidden tax on program participants” and “DEQ is not authorized to levy a carbon tax on electricity customers in Virginia.” 

The Manufacturers Association has asked Richmond Circuit Court to declare the regulation “null and void.”

A DEQ spokesperson said the agency does not comment on pending litigation.