(l-r) Antholy Holtzman, Craig Wilson and Tad Macfarlan, with K&L Gates.

In Pennsylvania, policy makers in the Governor's Office and General Assembly are actively considering the propriety of joining the Regional Greenhouse Gas Initiative (RGGI). RGGI is a regional, "market-based" carbon dioxide (CO₂) emissions reduction program that is currently being implemented in 10 northeastern states—Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont. In these states, consistent with RGGI, fossil fuel-fired electric power generators with a capacity of 25 megawatts (MW) or greater are required to obtain allowances to offset their CO₂ emissions.  The vast majority of those allowances are distributed through quarterly, regional allowance auctions, which have generated in excess of $3.5 billion in revenues for the participating states since RGGI's inception.

On Oct. 3, 2019, Gov. Tom Wolf issued an executive order (No. 2019-07) directing the Pennsylvania Department of Environmental Protection (PADEP) to develop a proposed rulemaking package that would suffice to implement RGGI, should the commonwealth decide to formally join the program. PADEP is currently developing those proposed rules and, by Sept. 15, 2020, intends to present them to the Environmental Quality Board (EQB), who will decide whether to publish them for public comment. The governor's view is that the executive branch has the power to bind the commonwealth to RGGI and adopt rules to implement the program.

Meanwhile, some members of the General Assembly have supported proposed legislation (Senate Bill 950 and House Bill 2025) that would expressly prohibit PADEP from taking any action to join or implement RGGI without first obtaining authorization from the General Assembly.

Against this backdrop, some stakeholders have questioned whether the governor, PADEP and EQB possess the requisite constitutional and statutory authority to unilaterally join and implement RGGI in the manner they have proposed. This article identifies and briefly explores the key issues in this regard, which fall into two broad categories:

• Does the governor have the authority to join RGGI unilaterally?
• Does the EQB have the authority to adopt rules that implement RGGI?

In sum, on both counts, there are serious questions regarding the legality of the executive branch's "go-it-alone" approach.

• Does the Governor Have the Authority to Join RGGI Unilaterally?

In order to join RGGI formally, the commonwealth would ultimately need to sign onto the RGGI Memorandum of Understanding (MOU), which operates like a contract between the signatory states.  There is a strong argument, however, that the governor is not empowered to execute the RGGI MOU unilaterally.

As a background principle, the Pennsylvania Constitution provides the governor with a defined and limited set of powers. In contrast, the General Assembly's power is plenary and therefore, unless the Constitution says otherwise, it has authority over and may enact legislation regarding any subject. See, e.g., Kotch v. Middle Coal Field Poor District, 197 A. 334, 338 (Pa. 1938) ("the General Assembly has jurisdiction of all subjects on which its legislation is not prohibited").

While the Pennsylvania Constitution supplies the governor with a number of important powers, the authority to enter into interstate agreements or compacts is not among them. Therefore, the Pennsylvania Supreme Court has recognized that the Constitution vests the General Assembly with the compacting power and that, if a statute delegates that power to an executive branch actor, the delegation must "evince the Legislature's 'basic policy choice' to participate in [the] interstate agreements" in question. See Whitlatch v. Commonwealth, 715 A.2d 387, 389 (Pa. 1998). Therefore, in order to sign onto the RGGI MOU, the governor would need to rely on some specific grant of statutory authority.

Two statutes are of particular relevance. First, the Air Pollution Control Act (APCA) provides that PADEP may "formulate interstate air pollution control compacts or agreements for the submission thereof to the General Assembly." By the plain terms of this provision, PADEP may formulate interstate air pollution agreements, but may not actually execute them.  Instead, it must submit them to the General Assembly for consideration.

Second, the Uniform Interstate Air Pollution Agreements Act (UIPAA) authorizes PADEP to enter into multi-state "administrative agreements" that provide for the "cooperation and coordination of efforts to control air pollution[.]" 35 P.S. § 4103(a). Such "administrative agreements" may provide for, among other matters, the "coordinated administration" of the states' respective air pollution control programs, "consultation concerning technical" issues, and the "development of recommendations" concerning air quality standards.

The RGGI MOU does not appear to qualify as the type of "administrative agreement" that UIPAA contemplates. Under the RGGI MOU, each signatory state makes a binding commitment to propose and implement a regional CO₂ budget trading program, which is predicated on the state's mandatory participation in regional, revenue-raising allowance auctions. RGGI MOU Sections 1, 2.A. This arrangement is very different from the paradigmatic "administrative agreement" that provides, for instance, for the sharing of ambient air monitoring data or the convening of periodic technical conferences among agency staff. The better reading is that the RGGI MOU qualifies as an interstate air pollution control agreement that, pursuant to APCA, must be submitted to the General Assembly for approval.

• Does the EQB Have the Authority to Adopt Rules that Implement RGGI?

Separate and apart from whether the governor could lawfully sign onto RGGI, many people have questioned whether the EQB (the commonwealth's environmental rulemaking agency) has the authority to adopt regulations to implement RGGI.

First and foremost, the cornerstone of RGGI is an auction program that would arguably qualify as a "tax" that only the General Assembly could impose. In Pennsylvania, the "power of taxation, in all forms and of whatever nature lies solely in the General Assembly." See Mastrangelo v. Buckley, 250 A.2d 447, 452 (Pa. 1969). Under prevailing Pennsylvania case law, RGGI's quarterly auction mechanism would arguably constitute a "tax" because it would be a "revenue-producing measure." See City of Philadelphia v. Southeastern Pennsylvania Transportation Authority, 303 A.2d 247, 251 (Pa. Cmwlth. 1973). RGGI's allowance requirements, in this regard, stand in contrast to permissible regulatory "fees," which are merely "intended to cover the cost of administering a regulatory scheme." See Rizzo v. City of Philadelphia, 668 A.2d 236, 237-38 (Pa. Cmwlth. 1995). Without question, the proceeds of RGGI's quarterly auctions are disproportionate to the costs of program administration (through 2017, the signatory states had directed less than 6% of proceeds toward program administration). The result is that, if the EQB adopted rules to implement RGGI, a court employing the "tax v. fee" mode of analysis would likely conclude that those rules imposed an unconstitutional tax on fossil fuel-fired power plants.

This constitutional limitation is consistent with the EQB's limited authority under APCA to establish emission fees. Under APCA, the EQB may only establish "fees sufficient to cover the indirect and direct costs of administering" APCA and the federal Clean Air Act. The EQB, therefore, would not have the authority to require the direct payment of carbon emission fees in the sums that RGGI contemplates.

A key issue, in turn, is whether the governor and EQB can potentially side-step these constitutional and statutory limitations by promulgating a "market-based" requirement to make payments that are not collected in the same manner as traditional taxes or fees, but that nevertheless amount to a very substantial amount of revenue. Under the prevailing case law, mentioned above, the method of collection does not appear to be a determinative factor. And, of course, from the perspective of the regulated community, it makes little difference whether the payments reach state coffers directly, via check, or indirectly through distributions of auction proceeds that are linked to the number of tons of CO2 emissions that result from generation.

Aside from the revenue implications, there are other questions regarding whether the EQB has the authority to adopt a "cap-and-trade" program to reduce CO₂ emissions. Under Pennsylvania law, legislative delegations of rulemaking power "must be clear and unmistakable as a doubtful power does not exist." See Eagle Environmental II v. PADEP, 884 A.2d 867, 878 (Pa. 2005) (internal quotations omitted). APCA generally authorizes the EQB to adopt regulations "for the prevention, control, reduction and abatement of air pollution," including regulations that address "the combustion of certain fuels" or any "source or class of … sources." But these general delegations of rulemaking power are arguably insufficient to confer on the EQB the authority to adopt a "market-based" allowance trading program (as opposed to more traditional "command-and-control" regulations). Furthermore, no Pennsylvania court has concluded that, under APCA, the presence of ambient CO₂ or other greenhouse gases in the outdoor atmosphere constitutes "air pollution" that can be regulated, particularly where the regulatory regime would not be required under the federal Clean Air Act.

 

Conclusion

If the governor, PADEP and EQB decide to join and implement RGGI without authorization from the General Assembly, there is a real possibility their actions would be challenged—and thwarted—in the court system. Pennsylvania would be better served if the governor and General Assembly would work together to create a legally sustainable energy policy for the commonwealth.

Craig Wilson is managing partner of K&L Gates' Harrisburg office and practice group coordinator for the firm's global environment, land and natural resources practice group. He counsels clients who are developing and operating energy projects and other commercial and industrial projects.

Anthony Holtzman is a firm partner focused on constitutional law, environmental law, appellate litigation, utilities law, gaming law and commercial litigation. He regularly represents private and public sector clients, including legislative bodies and legislators, on issues of Pennsylvania and federal constitutional law.

Tad Macfarlan is a partner in the firm's environment, land and natural resources practice group. Macfarlan advises the firm's energy, industrial, utility and commercial sector clients on compliance with federal, state and local environmental and land use laws.