As Virginia explores options for carbon trading, joining RGGI a possibility

As Virginia Gov. Terry McAuliffe positions the state to take more aggressive steps to curb greenhouse gas emissions, joining a regional carbon trading effort is once again on the table.

The efforts come as state and local governments are taking charge of climate change mitigation efforts amid the pullback on the Clean Power Plan by the Trump administration. While attempts in each of the three previous General Assemblies to direct Virginia to join the Regional Greenhouse Gas Initiative (RGGI) – a leading multi-state cap-and trade-partnership — have fallen far short, the lack of federal direction emboldens stakeholders to try a different approach.

The latest effort begins Wednesday when William Shobe, an economist at the University of Virginia’s Weldon Center for Public Policy, directs a workshop that will discuss different approaches. McAuliffe and Shobe, separately, along with industry colleagues, have been studying alternative approaches to carbon cap and trade systems for years.

“The governor supports the utilization of a multi-state market,” said Angela Navarro, Deputy Secretary of Virginia’s Department of Natural Resources and a McAuliffe appointee.

“We are currently exploring all market-based options for carbon reduction through the regulatory process,” Navarro said. “The RGGI market is well-established and is one such option. As our stakeholder engagement moves forward, we hope to receive input on what market-based mechanism is most appropriate for Virginia.”

To be held at Virginia Commonwealth University in Richmond, the July 12 workshop is expected to include inputs from Lisa Moerner, Director of Corporate Public Policy at Dominion Energy, the state’s largest utility. Also slated to speak are representatives of Resources for the Future and the Natural Resources Defense Council. Both are to offer updated computer models for designing systems that can trade allowances tied to a cap that could be implemented in Virginia.

A recent executive directive by McAuliffe helped renew interest in joining RGGI. In it, McAuliffe moved to ensure the state is “trading-ready” and includes a structure that enforces carbon-reduction mechanisms. The directive follows an executive order McAuliffe signed in 2016 which required a state working group to recommend methods to reduce carbon emissions and boost Virginia’s clean energy economy.

Shobe said the withdrawal of the Clean Power Plan “actually helps” because that element is “no longer relevant” to Virginia’s path forward.

“If we want to go along with CO2 emissions reductions, we ought to choose the most efficient and cost-effective way to do that. RGGI is our best bet,” Shobe said.

RGGI launched in 2009 and now has nine Northeast states – from Maine and Maryland — participating. It established a cap for the region on the amount of CO2 pollution that power plants can emit by issuing a limited number of tradable allowances. Each allowance represents an authorization for a regulated power plant to emit one ton of CO2. Budget trading programs in each RGGI state together have created the regional market for CO2 allowances.

RGGI states distribute more than 90 percent of allowances through quarterly auctions. The proceeds from those auctions are available to invest in strategic energy and consumer benefit programs.

Three dynamics could complicate, or at least frame, the workshop and future deliberations, several clean energy advocates said. One is that all of the RGGI states have deregulated their retail power markets while Virginia has not. Dominion Energy and the other investor-owned utility in the state –Appalachian Power — retain monopoly control of their respective service territories.

Secondly, if large corporations such as Amazon and Microsoft with data centers in Virginia weigh in, as they have for renewable energy supply options, it could tip the odds in favor of Virginia joining RGGI.

Lastly, under state law, McAuliffe cannot stand for re-election and his current term will expire in January. Democratic candidate Ralph Northam has praised the climate directive and would be expected to pick up where McAuliffe and stakeholders leave off; Republican Ed Gillespie denounced it as “job killing and cost-increasing.”

Many stakeholders agreed that legislation would be needed to specify how revenue from auction allowances would be spent. Among the options are spurring energy efficiency initiatives through utilities and private companies and protecting the Norfolk-Virginia Beach region against rising sea levels.

Mike Tidwell, founder and director of the Chesapeake Climate Action Network, advocates for Virginia joining RGGI and concurs with McAuliffe staffers whom he said have privately asserted has the legal and regulatory authority to adopt a cap on power plant emissions.

While McAuliffe’s executive order does not expressly state RGGI is the vehicle to help accomplish that, “people in-the-know conclude RGGI is the only place Virginia would want to do business,” he said.

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