DEP drafts ‘cap-and-invest’ program for Pa. energy sector

Justin Henry//February 17, 2020

DEP drafts ‘cap-and-invest’ program for Pa. energy sector

Justin Henry//February 17, 2020

The latest draft proposal for a statewide “cap-and-invest” program, unveiled last week by the state Department of Environmental Protection (DEP), would create incentives for energy producers to turn away from fossil fuels and reinvest in green energy to mitigate the onset effects of climate change.

The guidelines would play a key role in moving Pennsylvania toward Gov. Tom Wolf’s mandate to reduce net greenhouse gas emissions to 80% below 2005 levels by 2050.

Only fossil fuel-fired power plants with an intended capacity of 25 megawatts or greater that send more than 10% of annual gross generation to the grid would be subject to new regulations. An estimated 49 power plants and 125 units, 10 waste coal plants and one industrial unit in the commonwealth would be qualified, according to the DEP.

Pending approval by the state Environmental Quality Review Board, the commonwealth would enter into the Regional Greenhouse Gas Initiative, or RGGI, a budget trading program for energy sectors in 10 mid-Atlantic and New England states. DEP officials are laying the groundwork for Pennsylvania’s energy sector to comply with the program by the start of 2022.

Upon entering RGGI, qualifying power plants would be required to purchase credits for each ton of carbon they plan to emit at statewide quarterly auctions. Companies could also trade those credits among themselves in a “secondary market.”

Although Pennsylvania would have only a set quantity of allowances to sell to companies, and that quantity declines every year, energy companies could still buy and sell allowances with others throughout the 10-state RGGI region in the secondary market.

“Once an allowance is bought on a primary market, then it can be sold on a secondary market,” said Hayley Book, senior adviser on energy and climate for the DEP. This allows companies to obtain carbon allowances at any time during the three-month period between RGGI auctions, she said.

Book said the DEP has yet to set an allowance budget but it will come with the department’s ongoing economic analysis.

In an effort to spur the development of combined heat and power facilities, DEP regulators are proposing greater flexibility for cogeneration plants that supply power to manufacturing facilities. Cogenerating plants supplying less than 15% of their annual total useful energy to any entity, not including energy sent to an interconnected manufacturing facility, would be exempt from RGGI standards.

DEP Secretary Patrick McDonnell, testifying before the joint legislative air and water pollution control and conservation committee, said the RGGI regulatory template allows Pennsylvania’s environmental regulators to design state-specific laws that address the state’s particular energy market. For example, DEP regulators in Pennsylvania have proposed a set-aside account for its waste coal generation industry to encourage the supply of cogeneration energy to manufacturing facilities.

This means the DEP would have an additional reserve of credits allotted to waste coal generation facilities equal to 7.9 million tons — the total amount waste coal plants emitted in 2018.

“Waste coal facilities will not incur significant compliance costs as a result of Pennsylvania’s participation in RGGI, as long as the emissions from the waste coal generation sector do not exceed the set-aside amount on an annual basis,” McDonnell said.

If the total combined emissions for qualifying waste coal facilities didn’t exceed the 7.9 million tons of carbon dioxide, there will be no allowance-related RGGI compliance costs for these entities, McDonnell said. But if the sector exceeds the 7.9 million ton set-aside, then individual facilities will be responsible for the procurement of allowances needed above the set-aside amount.

“Thousands of tons of coal waste and coal silt remain near streams or along the stream banks that line Pennsylvania’s extensive network of streams and rivers,” he said. “There is clearly more work to be done.”

Book said the next steps for the DEP are to settle on an allowance cap based on an ongoing market analysis and present the drafted law for approval to the department’s advisory committees before a public comment session begins in the fall.

Tackling climate change

At Thursday’s public hearing by the Air Quality Technical Advisory Committee, Kathleen Robertson, Exelon Corporation’s senior manager of environmental policy and wholesale market development, spoke in favor of the plan on behalf of Exelon Corporation. Robertson said Exelon has conducted businesses in RGGI-affiliated states since the regional initiative began in 2009.

“Our over a decade-plus record of experience with this program reinforces our belief that RGGI is the right step for Pennsylvania at this time, as we begin to tackle climate change and the significant threats it poses to the communities we’ve served in Pennsylvania,” she said.

An Acadia Institute study showed RGGI states collectively reduced emissions by 47% in the last decade, outpacing the rest of the U.S. by 90%. Electricity prices dropped by 5.7% in RGGI states as they went up by 8.6% throughout the rest of the country, while GDP grew by 47% in RGGI states.

Citing the closure last year of the unit 1 reactor at Three Mile Island Nuclear Station due to financial distress, Robertson said entering RGGI with an appropriate budget level would be “critical to preserving the commonwealth’s remaining nuclear power plants.”

“RGGI works in part by sending a positive price signal to clean generation sources through the energy markets, and the efficacy of that signal is a direct consequence of whether that cap is set appropriately,” she said.

Questions of cost

Detractors said RGGI compliance would drive energy costs up and energy providers out of the state, as well as make doing businesses in Pennsylvania a challenge for some of the country’s largest energy providers. That’s why PJM Interconnection, a Norristown-based energy transmitter, transmits Pennsylvania-generated energy to RGGI states like Delaware, according to Vince Brisini, director of environmental affairs for Olympus Power LLC.

Brisini said natural gas and coal-fired energy from non-RGGI states will simply replace Pennsylvania’s energy supply.

“We know that if an RGGI state can import power from another area they will,” he said at Thursday’s public hearing. Olympus Power is an independent power company that says it invests in the country’s “major unregulated electricity markets in the U.S.,” including Pennsylvania.

In his testimony before the joint legislative air and water pollution control and conservation committee, DEP Secretary McDonnell called climate change “the most critical environmental threat facing the world.”

Pennsylvania has an obligation to take action to reduce greenhouse gas emissions, McDonnell said, as one of the highest greenhouse gas emitting states in the U.S. Emitting 217.4 million tons of carbon each year, Pennsylvania ranks fourth behind Florida, California and Texas and would be the highest carbon-emitting states in RGGI.

“Right here in Pennsylvania, it has led to more flooding, more heat and respiratory illnesses, more vector-borne diseases and pests, and more disruptions to agricultural systems,” he said.

Since 1900, Pennsylvania has warmed by 1.8 degrees Fahrenheit, according to McDonnell. Annual precipitation has increased 10% on average, with some areas seeing a 20% increase over the same time period. From 1958 through 2010, the northeast U.S. saw more than a 70% increase in the amount of precipitation falling during very heavy rainfall events.

“The impacts of climate change are vast and what was predicted 10 years ago is being confirmed today,” he said, adding that Pennsylvania is expected to warm by 5.4 degrees. “By the middle of this century, Philadelphia will feel like Richmond and Pittsburgh will feel like Washington, D.C. Precipitation patterns will also be increased by another 8% by 2050, with a winter precipitation increase of 14%.”