Regulating Imports into RGGI: Toward a Legal, Workable Solution

On August 21, CCCL released a new white paper that evaluates the legal workability and constitutionality of regulating imports into the Regional Greenhouse Gas Initiative, or “RGGI” (for background on RGGI, the Northeastern states’ cap-and-trade program for carbon dioxide, see prior posts).

RGGI is currently in an exciting period of reform.  In February 2013, participating states announced plans to lower RGGI’s cap on carbon dioxide emissions by 45% in 2014. At the same time, RGGI states made a commitment to work towards a solution to address the emissions from electricity imports into the region.  Given that imports make up between 10 and 52% of various RGGI states’ electricity consumption, and that these percentages may increase under a tightened emissions cap, it is a critical time to delve more deeply into the options available to RGGI to deal with imports’ emissions.

Our white paper examines what is frequently considered the most feasible mechanism for RGGI to use in regulating imports: an obligation on RGGI “load serving entities” (LSEs)—those companies responsible for supplying electricity to end-use customers—to purchase allowances to account for the emissions associated with the electricity they sell that is imported.  Ultimately, although there are many design complexities yet to be worked out, we find that an LSE-centered approach could present a viable pathway forward for RGGI states’ regulation of imports.  It is likely to create long-term price signals about the value of clean energy and to help prevent emissions “leakage.”  However, an LSE-centered approach also has some features that may be considered drawbacks: it would likely increase consumer prices within RGGI without sending any immediate price signals to out-of-state generators to incentivize their emissions reductions (instead, such price signals will develop over time as new clean generation and demand-side resources come on-line).

After considering how such a mechanism might be designed, the bulk of the white paper examines whether an LSE-centered mechanism could survive a constitutional challenge under either the dormant Commerce Clause or Federal Power Act preemption.  We conclude that the scheme has a good chance of surviving constitutional scrutiny because it places compliance burdens on in-state retail suppliers that purchase electricity from regional wholesale markets, such that out-of-state generators will see minimal effects.  Moreover, imports regulations are fundamentally not protectionist regulations—to the contrary, RGGI imposes far greater burdens on in-state generators than out-of-state generators would face.  However, our conclusions are subject to several caveats and nuances explored in our analysis.

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