PA Supreme Court Justices Split Over RGGI – Carbon Tax or Fee?

Article Published by Marcellus Drilling News - 5.25.23 (Link: PA Supreme Court Justices Split Over RGGI - Carbon Tax or Fee? | Marcellus Drilling News)

Yesterday the six sitting justices of the Pennsylvania Supreme Court (currently one vacancy due to the death of Chief Justice Max Baer last fall) heard oral arguments in a case about the so-called Regional Greenhouse Gas Initiative (RGGI)-a carbon tax scheme aimed at shutting down coal- and natural gas-fired power plants in the state. As is often the case, this Supreme Court case is about a technicality in the law. A lower court (PA Commonwealth Court) blocked the state's entrance into RGGI last year until a lawsuit challenging PA's participation could play out (see PA Judge Reinstates Order Blocking PA's Entry into RGGI Carbon Tax). The Supremes heard arguments about whether or not the lower court should have temporarily blocked RGGI. However, yesterday's discussion by the justices kept drifting back to the core issue: Is RGGI a "fee" as it claims, or is it a tax?

It's an important question. If RGGI is a fee, then under PA law, a regulatory agency (like the DEP) may assess and collect the fee, and life goes on. If indeed RGGI is a tax (as it most certainly is), then Gov. Wolf, who tried to force RGGI on an unwilling state, had no constitutional right to force the state to join it. The power of the purse-to levy and collect taxes-is the exclusive power and responsibility of the legislative branch, NOT the executive branch. That is the core issue of the main lawsuit under consideration in Commonwealth Court. Yet that's the issue the Supremes kept dancing around yesterday-fee or tax?

Analysts try to read the tea leaves and discern how the judges will rule based on their questions, comments, and discussion. In reading an Associated Press article about yesterday's oral arguments (below), we can tell you that based on the AP reporter's observations, he appears mildly worried the justices will rule in favor of the lower court's injunction against joining RGGI.

The RGGI lawsuit in Commonwealth Court about whether RGGI is a tax or a fee. It's possible once that court rules that it's a tax (as we suspect will happen), the case may end up at the Supreme Court again.

The good news here is that while Commonwealth Court does its thing with the main case, and while the Supremes ruminate over lifting the temporary block on joining RGGI-RGGI is still blocked. Every day that RGGI is blocked is a good day for all Pennsylvanians.

From the AP:

Justices on Pennsylvania's Supreme Court indicated Wednesday that they are likely to have split opinions on whether a governor has the right to force power plant owners to pay for their planet-warming greenhouse gas emissions, or whether he first needs approval from a Legislature that refuses to go along with the plan.

Hanging in the balance is Pennsylvania's effort to become the first major fossil fuel-producing state to adopt carbon pricing.

On Wednesday, the state's highest court listened to arguments on whether a lower court was right last summer to halt Pennsylvania's participation in a multistate consortium that imposes a price and declining cap on carbon dioxide emissions from power plants.

But the justices repeatedly turned the conversation to the underlying legal question still being considered by the lower court: whether former Gov. Tom Wolf usurped the Legislature's constitutional authority to approve any form of taxation.

In that dispute, Republican lawmakers contend the carbon-trading plan is an unconstitutional tax because it lacks legislative approval; state lawyers contend it is a fee that a state agency has the authority to impose to operate a program.

Justice Christine Donohue, a Democrat, suggested it might be difficult to rule on one issue without settling the other.

"I don't even know how we would make that holding without tipping our hand as to whether or not it's a tax or a fee and we just don't play 'hide the coin' that way," Donohue told a lawyer for Senate Republicans.

At stake is no small amount of money: Pennsylvania would have raised more than $1 billion had it begun participating in 2022 when Wolf intended, according to calculations by the Natural Resources Defense Council, a nonprofit environmental advocacy group.

Taking part in the consortium became the central plank in Wolf's plan to fight global warming. It also is a political minefield for Gov. Josh Shapiro, Wolf's successor and a fellow Democrat who was endorsed by labor unions that fought the plan.

The high court comprises four justices elected as Democrats, two as Republicans and one vacancy.

Justice Kevin Brobson, a Republican, signaled a number of objections to the plan.

At one point, he questioned whether the cost of the carbon-dioxide allowances that power plants would have to buy is too excessive to be considered a fee that pays for a regulatory process.

Then he suggested the plan is a "chicken and egg thing" through which an agency imposes a fee before deciding how to spend it, an avenue that he said could be abused by agencies with an underfunded program.

"Then aren't we bypassing the General Assembly's authority and the governor's authority and we're just basically allowing agencies to pump up their inadequate funds and just build these coffers?" Brobson asked a lawyer representing Shapiro's administration.

The lawyer, Matthew White, said the money must be spent in accordance with the state's air pollution laws and that the regulation envisions the money being used to enhance energy-efficiency programs, renewable energy usage and efforts to cut greenhouse gas emissions.

White also said there is no evidence that the fees are adequate to address the problem of greenhouse gas pollution.

Democratic justices closely questioned assertions by a lawyer for Senate Republicans that the carbon-pricing plan cannot legally be a fee, partly because it works through regional auctions that impose costs and requirements on power plants in certain states, but not others.

"So because it doesn't address everything, it shouldn't address anything in terms of regional impact?" Donohue asked.

Donohue also seemed to suggest that the aims of the carbon-pricing program could be protected by an environmental rights amendment to Pennsylvania's constitution.

Shapiro has maintained that he does not support entering the consortium, the Regional Greenhouse Gas Initiative, on Wolf's terms.

But he continues to fight for it in court and his top environmental protection appointee told lawmakers in March that joining the consortium is "a vehicle" that could help meet Shapiro's "strong and very aspirational goals" to help the environment.

Republican lawmakers, fossil fuel interests, industrial power users and trade unions oppose it, saying it will hurt the state's energy industry and drive up electric bills.

State officials, independent researchers and environmental advocates say the money reaped through the auction of emission allowances would stabilize electricity bills, or lower them, while cutting greenhouse gas emissions and helping transition fossil fuel workers into new industries. (1)

From the Pennsylvania Capital-Star:

Pennsylvania's Supreme Court heard oral arguments in two separate but related cases over a multi-state cap-and-trade program aimed at reducing the commonwealth's carbon emissions.

On Wednesday, the high court heard arguments on whether the state should be able to move forward with the Regional Greenhouse Gas Initiative while a lower court decides if former Gov. Tom Wolf's administration exceeded its powers by entering the program.

The court's six justices were also asked to consider whether three environmental advocacy groups should be allowed to participate and present evidence in the lower court case.

An attorney for acting state Environmental Protection Secretary Richard Negrin said the Commonwealth Court was wrong when it issued an order last summer halting the commonwealth's participation in the regional compact.

In his order, Commonwealth Court Judge Michael Wojcik said there was a substantial legal question whether the money the state will receive through the auction of carbon credits is an unconstitutional tax.

The DEP's attorney, Matthew White, argued that Wojcik should have gone further to determine whether the four state senators who challenged RGGI would suffer irreparable harm, an essential element to winning an injunction.

"The plaintiffs are four individual senators. They don't have any harm," White said.

Brigid Khuri, one of the attorneys representing members of the General Assembly, said that if the RGGI revenue is ultimately found to be a tax, that would be an infringement by the DEP on the powers of the Legislature.

"There is no way to remedy the harm to the General Assembly at that point," Khuri said.

Citizens for Pennsylvania's Future, the Sierra Club, and the Clean Air Council appealed a decision denying their request to participate in the Commonwealth Court case.

Their attorney, Jessica O'Neill, argued the groups have a right to participate as beneficiaries of the state's Clean Air Fund, which is slated to receive a portion of the RGGI auction money, under Pennsylvania's Trusts Law.

The advocacy groups also have an interest in whether lawmakers proved that blocking RGGI would do less harm than letting it go forward, O'Neill said.

"That's where my clients … really felt that we had interests that were not adequately being represented, that we needed to put forward that evidence of harm to real people to Pennsylvanians and to the environment," O'Neill told reporters after the argument.

Pennsylvania formally entered the program, to participate in quarterly carbon credit auctions, back in April 2022 after several years of debate and controversy, joining neighboring states New York, New Jersey, Maryland, and Delaware.

Opponents have previously called the decision to join RGGI unconstitutional, accusing Wolf of executive overreach.

Lawmakers in the General Assembly also made several legislative attempts to block the regulation from taking effect before taking legal action to challenge the executive order.

In July 2022, the Commonwealth Court issued an order, blocking the state from continuing its efforts to join RGGI.

The court order has prevented the commonwealth from participating in any of the carbon credit auctions since joining the program.

Officials at the state Department of Environmental Protection and the Environmental Quality Board appealed the order to the state Supreme Court, which has yet to issue a ruling.

Katie Blume, political and legislative director for Conservation Voters of PA, spoke to reporters following the arguments on Wednesday, thanking Gov. Josh Shapiro's administration for continuing to defend Pennsylvania's RGGI rules.

"We know that Pennsylvania is in a position to become a real leader on the energy transition that we know we need," Blume said.

Shapiro's $44.4 billion budget proposal includes $663.3 million from the cap-and-trade program.

The regional carbon reduction program is the best tool that Pennsylvania has, and it has contributed to reducing carbon emissions by more than 50% in states where it is already in effect.

"We know that the proceeds from the RGGI auction have the potential for further growth in a Pennsylvania clean energy economy," Blume said.

Blume also addressed critics who said RGGI would lead to the loss of jobs in the energy sector, noting that the owners of the state's largest coal-burning power plant announced its closure last month.

"These are market forces that are already changing Pennsylvania's energy economy. So participating in RGGI, doing this the right way, and investing any proceeds into the Clean Air Fund will ultimately help Pennsylvanians and jobs and the air that we breathe," Blume said.

The state Supreme Court has no deadline to issue a decision. Meanwhile, the parties are awaiting a final ruling from the Commonwealth Court. (2)

(1) Associated Press (May 24, 2023) - Pennsylvania high court appears split over plan to force power plants to pay for carbon emissions

(2) Pennsylvania Capital-Star (May 24, 2023) - Pa. Supreme Court hears arguments on order halting greenhouse gas reduction program

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