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Pennsylvania Court Strikes Down Participation in the Regional Greenhouse Gas Initiative
On November 1, 2023, the Pennsylvania Commonwealth Court held that the rulemaking entering Pennsylvania into the Regional Greenhouse Gas Initiative ("RGGI") violated the state constitution. The decision upends regulatory efforts to have Pennsylvania join the multistate effort to reduce greenhouse gas emissions.
RGGI in Pennsylvania
RGGI is a regional cap-and-trade program, under which states can agree to place limits on the amount of carbon dioxide their power plants emit. Regulated power plants then purchase individual emission allowances, which together total the agreed-upon limits. As a result of the regional nature of the program, emission allowances can be bought and sold across state lines. In April 2022, Pennsylvania became the 12th state to join the program.
Preliminary Injunction
Shortly thereafter, two lawsuits were filed in an effort to prevent Pennsylvania's participation in RGGI. First, various companies and trade groups sued the Pennsylvania Department of Environmental Protection ("DEP") and the Pennsylvania Environmental Quality Board ("EQB"), arguing that RGGI constituted an improper tax under the Pennsylvania Constitution. Bowfin KeyCon Holdings, LLC v. Pa. Dep't of Envtl. Prot., No. 247 M.D. 2022 (Pa. Commw. Ct.).
The Secretary of DEP filed the second lawsuit against the Pennsylvania Legislative Reference Bureau and several associated directors. Ziadeh v. Pa. Legislative Reference Bureau, No. 41 M.D. 2022 (Pa. Commw. Ct.). Despite the fact that the adoption of RGGI rendered the secretary's claims moot, the case continued as several Pennsylvania state legislators had intervened and filed counterclaims against the secretary, similarly arguing in part that RGGI was an unconstitutional tax. At bottom, both cases turned on whether, in joining RGGI, DEP and EQB had implemented a tax, rather than a fee, without legislative approval.
The Commonwealth Court granted a preliminary injunction in both cases, prohibiting the implementation of RGGI. The court concluded that the program created an unconstitutional tax and not a permissible fee for three reasons:
- The DEP anticipated significant monetary benefits from participating in the emission allowance auctions. Additionally, the court was concerned that the proceeds would initially be remitted to all states participating in RGGI, not solely Pennsylvania;
- The DEP estimated that only 6% of the proceeds from the auctions would be used for administration and oversight of the program; and
- The anticipated proceeds from the auctions would be nearly three times the annual amount appropriated to the DEP.
After making this initial determination, on November 16, 2022, the court heard argument on whether to grant permanent injunctive relief.
Recent Decision
Nearly a year later, on November 1, 2023, the court reaffirmed its prior determination, holding that RGGI constituted an impermissible tax under the Pennsylvania Constitution. Relying on its same findings from the preliminary injunction stage, the court emphasized that the proceeds from the emission allowance auctions are grossly disproportionate to the cost of overseeing participation in RGGI and indeed even to DEP's and EQB's annual regulatory needs. Under Pennsylvania law, the court therefore concluded that the cost of the emission allowances were not a fee but an unconstitutional tax. In dissent, one judge argued that disputed material facts precluded disposition at the present stage.
Looking Forward
On November 21, 2023, Governor Josh Shapiro announced that Pennsylvania will appeal the Commonwealth Court's decision, emphasizing the importance of protecting executive authority. As RGGI is presently organized, however, the court's decision makes clear that Pennsylvania will need to undertake legislative action in order to join the multistate program.
