The Commonwealth Court of Pennsylvania is currently considering the constitutionality of Pennsylvania’s participation in the Regional Greenhouse Gas Initiative (RGGI), a 12-state cap-and-trade system that aims to reduce carbon dioxide emissions from power plants. As of this summer, the state’s RGGI program exists in a state of limbo pending the court’s decision, which will culminate in one of two scenarios: an appeal to the state Supreme Court, or Pennsylvania’s exit from the RGGI market. The decision to appeal a ruling against the program would rest with Governor Josh Shapiro, who says he wants to decarbonize power generation in a way that protects energy workers and consumers, but has been ambivalent about RGGI specifically.
This episode is the first in a two-part series exploring recently published research that sheds new light on RGGI’s potential to achieve Governor Shapiro’s climate goals while supporting his broader economic agenda. Contrasting earlier studies, which drew mixed conclusions about RGGI’s cost-effectiveness at lowering emissions and its potential impacts on consumers, the new research accounts for developments that have transformed the playing field over the last two years. Chief among these is the Inflation Reduction Act of 2022, which creates not only a massive federal investment in clean energy, but also new tools and incentives for states to support communities through a just and equitable transition. Meanwhile, stricter standards proposed in May by the Environmental Protection Agency have speeded up the pace of planned retirements for coal-fired power plants. At the same time, natural gas prices have risen, in part because of the war in Ukraine, while the price of renewables has dropped.
In this episode, we’ll look at a 2023 report from the Kleinman Center for Energy Policy at the University of Pennsylvania, which provides updated estimates of how quickly RGGI gets the state to net zero carbon emissions, examines the potential to rapidly scale up renewables, and considers the likely effect on energy costs.
Angela Pachon, research director for the Kleinman Center for Energy Policy and another author of the report, said joining RGGI would help Pennsylvania accomplish its primary climate goal — reducing carbon emissions.
“What we found was that when Pennsylvania is in the RGGI program, there are much lower emissions in Pennsylvania than when it’s outside of the program,” Pachon said. Crucially, the report says, those reductions happen at a lower marginal cost than current allowance prices might seem to suggest, and with a negligible or even salutary effect on retail prices.
One frequently cited concern has been that joining RGGI would raise electricity rates. Maya Domeshek, a research associate at Resources for the Future and an author of the report, said that RGGI would actually reduce retail electricity prices under the right conditions.“So I think kind of what that tells us is, first of all, the impact is really small,” Domeshek said. “And second of all, that there’s a real potential for cleaning up the electricity sector to reduce electricity rates in the long run, especially because of the existence of the IRA, which is bringing in so many subsidies to the state. You could in the long run, see rates fall if the program moves faster.”
Whether or not Pennsylvania participates in RGGI could have sweeping consequences. The report found that Pennsylvania’s participation would lead to lower emissions on a national scale.
“And that’s really what matters,” Pachon said. “Pennsylvania emissions are going down, U.S. emissions are going down. So the program is doing what it’s set out to do.”
Reducing emissions doesn’t just help fight climate change. It also makes the world a cleaner and healthier place to live. Reducing particulates and pollutants in the air would prevent premature deaths from respiratory illness and hospital visits for respiratory illnesses like asthma, the report found.
In part two of this series, we’ll focus on a report from Ceres and Evergreen Action. That report zooms in on energy costs with and without RGGI, both in terms of consumer impacts and of the nearly $1 billion federal dollars at stake if Pennsylvania fails to join. Look for that episode on July 21.
Josh Raulerson (00:00)
It is Friday, July 7th, 2023, and from the Pennsylvania Environmental Council, this is the Pennsylvania Legacies Podcast. I’m Josh Raulerson. Pennsylvania officially joined the Regional Greenhouse Gas Initiative, RGGI, last year, but the state hasn’t yet begun participating in the 12-state carbon market. That’s because courts are still considering the constitutionality of Pennsylvania’s RGGI program initiated at the direction of former Governor Tom Wolf. The case currently stands before the Commonwealth Court of Pennsylvania. If that court were to strike down Wolf’s policy, it’ll fall to his successor Josh Shapiro, to determine whether or not to appeal to the state’s Supreme Court. Governor Shapiro has said addressing climate change is one of his top priorities, but at the same time, it’s not clear exactly how RGGI might figure in that agenda. The candidate Shapiro was ambivalent on the campaign trail, and he hasn’t commented directly on the matter since taking office.
However, Shapiro’s first budget proposal back in February included more than $600 million in projected revenues from the sale of carbon allowances — a sign that if nothing else, he hasn’t taken RGGI entirely off the table. Meanwhile, the governor’s office says whatever path he does take, in addition to reducing carbon emissions from power generation, we’ll also have to ensure the availability of good jobs in the energy sector while protecting consumers from rising energy costs. Exactly how effective RGGI would be in meeting those goals has been hotly debated over the last few years, and existing research has mostly pointed to mixed conclusions. However, a lot has changed since those earlier studies were published, including notably the rising price of natural gas, and in particular, a massive investment of federal dollars into clean energy. And as Governor Shapiro considers his next move, several new studies have come out that paint a much clearer picture of RGGI’s probable impact on Pennsylvania’s economy and its carbon footprint.
This month on the podcast, we’re gonna take a close look at two of these recent analyses. The first is from the Kleinman Center for Energy Policy at the University of Pennsylvania, and it provides updated estimates of how quickly RGGI gets us to net zero, examines the potential to rapidly scale up renewables, and considers the likely effect on energy costs. The second report from Ceres and Evergreen Action zooms in on those costs, both in terms of consumer impacts and of potential missed opportunities to leverage federal funding. That’s contingent on RGGI participation. Now, this is a huge body of research, and it’s gonna take more than one episode to unpack it all, but having said that, all the evidence points to the same conclusion: RGGI checks all the boxes. The sooner Pennsylvania begins offering carbon allowances on the RGGI market, the better this transition will go for workers, rate payers, and the climate. Before we get into that new research though, let’s take a moment to recap how we got here, where things stand with PEC’s Senior VP for Legal and Government Affairs, John Walliser. John, welcome back.
John Walliser (3:13)
Yeah, thanks Josh.
Josh Raulerson (3:15)
Give me a succinct recap of everything that’s happened with RGGI over the past, let’s say, year.
John Walliser (3:21)
So, I mean, the truth is we’re still waiting for the courts to decide. There are a couple of different issues at play. One over the fact that the court enjoined the rule in the first instance, and then also sort of to the merits, if you will, the substance of the rule making itself and whether there was proper statutory legal authority for the Department of Environmental Protection to promulgate the rule in the first place. We’re still waiting for the courts to decide.
Josh Raulerson (3:49)
I mean, it’s possible that the injunction could get thrown out. And then I, I, I imagine we would begin participating in RGGI, but there’s still the unresolved question of is it a tax or a fee? Is that right?
John Walliser (4:00)
There’s a couple of different issues. Tax versus fee is one of them, but yeah, you’re correct.
Josh Raulerson (4:04)
Okay. So there is, there is going to be a Commonwealth Court decision at some point. We have no idea really when that might happen.
John Walliser (4:11)
We don’t know when that might happen. We don’t know if, because there have been arguments now in front of the Supreme Court on the injunction issue. We don’t know if the Supreme Court’s gonna just step in. It’s a big question mark. There is an outside possibility [that] the Supreme Court could just decide the whole case on the merits go above and beyond just deciding on the injunction.
Josh Raulerson (4:31)
And then that would basically invalidate the Commonwealth Court process. That would just be over.
John Walliser (4:35)
It would essentially just be expediting the decision of the Supreme Court.
Josh Raulerson (4:39)
Okay. But probably more likely we’re gonna get a decision from the Commonwealth Court and then it’s on the governor to decide what happens next.
John Walliser (4:48)
That’s correct. Well, it ultimately depends on how the Commonwealth Court decides. So if the Commonwealth Court rules against the Commonwealth and the Governor and the Department of Environmental Protection, it will be their decision as to whether they want to appeal that decision or not. In the same vein, if the decisions in the favor of the Commonwealth and the Governor, it would be up to the challenges to decide if they want to appeal,
Josh Raulerson (5:12)
But the, the governor that would then be defending the Commonwealth’s position in that challenge. Right. Okay. Let’s get into tea leaves then if you don’t mind. Josh Shapiro said a lot of things about RGGI during the campaign. Some of them were kind of pro, some of them were kind of skeptical, and that’s led a lot of people to place of kind of uncertainty about where he stands and the decision’s gonna be forced one way or another. But the other thing that’s happened in 2023 is the inclusion of projected RGGI revenues in the governor’s budget proposal. As we record this, the budget is, well, maybe you can tell me, close to being resolved.
John Walliser (05:51)
We think, yeah, there are still ongoing conversations in Harrisburg as to the actual budget legislation itself. And then every year, the budget bill, if you will, is usually accompanied by a few other pieces of legislation that are necessary with respect to certain, uh, codes. We’re still waiting to see if any of those are gonna move as well.
Josh Raulerson (6:14)
So does this process tell us anything new about considering the inclusion of the RGGI revenues in the governor’s proposal? Is there any new information or any new, you know, conclusions to be drawn?
John Walliser (06:25)
No, I don’t think so. The governor had started a process to look into the RGGI rule-making, what the benefits could be for Pennsylvania, how they might implement it in a way that would be advantageous, you know, not just from an environmental perspective, but also from a community and work workforce, uh, perspective. Um, you know, since the election in November, um, there have been a couple of big changes. We’ve seen, we’ve started to see the rollout of federal dollars, um, from both the Infrastructure Reduction Act as well as IIJA. And we’re starting to learn more about how states can position themselves in a favorable way to take the most advantage of those resources. And one of those would be, you know, having money come in through RGGI to supplement whatever we could avail ourselves at the federal level.
The other big thing is, the federal and the Environmental Protection Agency’s announcement of, a federal rule on, on carbon emissions. That really levels the playing field. You know, there was a lot of concern about what Pennsylvania’s participation might be in RGGI relative to other neighboring states, even though a lot of our neighboring states are in RGGI and have been successfully for years. But there have been some concerns about that. That has now essentially been in a way taken care of because EPA’s gonna raise the floor. So other states that even those that aren’t contemplating RGGI are gonna have to start reducing their carbon dioxide emissions from the electric generation sector. So it really sort of turns the lens to RGGI as a favorable way to get at that issue.
Josh Raulerson (8:05)
And so this kind of diminishes the concern around leakage. Is that the, is that the right term for what we’re talking about here?
John Walliser (08:09)
Yeah, that’s the term that gets thrown around about the possibility of generation leaving Pennsylvania and locating in other states, although it’s been stated often, but we actually haven’t seen it. So, for example, there hasn’t been, uh, you know, new coal, new natural gas showing up right across the border in Ohio, West Virginia. There actually hasn’t been in many, many years.
Josh Raulerson (08:33)
Okay. So everybody’s, essentially, it comes down to everybody’s essentially waiting to see what the governor’s gonna do pending the outcome of these two legal challenges.
John Walliser (08:40)
Everyone’s waiting to see what the courts will do, and then we will look and see what the, uh, challengers and or defendants are going to do.
Josh Raulerson (08:47)
Okay. But the administration has made some statements about what its overarching goals are for decarbonizing the power sector. What, what are those, and what do supporters of RGGI, including PEC, need to show to satisfy the administration’s criteria as those have been laid out so far?
John Walliser (09:06)
Yes. The governor’s laid out three criteria. The first is reducing emissions. The second is ensuring that there are good jobs in the clean energy sector and resulting from decarbonization. And the third is protecting consumers. You know, in our view, RGGI takes all of those boxes. Again, we think that’s only been strengthened by what’s happened with the federal investment opportunities, as well as what’s commonly referred to as the 111(d) rule from, the pending 111(d) rule from the Environmental Protection Agency. So I think it’s as much about the administration, thinking about what the implementation opportunities are, what are some of the complimentary policies, whether those are existing or, uh, need to be created that could work in tandem with something like RGGI. It’s an extraordinarily complex set of issues. There are a lot of different players to it. I think we are going to start to see in Harrisburg heading into the fall, both from the General Assembly and from the administration, more thinking towards a more comprehensive energy decarbonization strategy, like, this is an issue we need to deal with — how do we do that? So at the moment, it’s, we’re in the preview stage.
Josh Raulerson (10:26)
Okay. So, and all of this is kind of setting up the conversations that we’re, we’re about to have on this podcast, looking at some of the recent research, uh, economic modeling and what happens with Pennsylvania in versus out of RGGI. And obviously we’ll get into that, but I’m wondering what your big takeaways are from what you’ve seen of, uh, you know, research that’s come out recently.
John Walliser (10:46)
Yeah, been encouraging for us, and we’re very glad this happened because, you know, when the modeling was done, not only by the Department of Environmental Protection, but others, when the rule making was being developed and when it was being finalized, you know, that was a snapshot in time. Very different time now, uh, you know, again, the federal dollars, the EPA, the forthcoming EPA rule, it really paints a different picture as to how RGGI can be, be a benefit to Pennsylvania.
Josh Raulerson (11:14)
John Walliser, our Senior Vice President for Legal and Government Affairs with the Pennsylvania Environmental Council. Thanks for your time.
John Walliser (11:21)
Josh Raulerson (11:27)
Onto the research. In May, the Kleinman Center for Energy Policy at Penn published a report in collaboration with Resources for the Future, a nonprofit think tank focused on environmental and energy policy. We’re joined now by two of its authors, Angela Pachon and Maya Domeshek. Welcome to Pennsylvania Legacies.
Maya Domeshek (11:45)
Thank you for having us.
Angela Pachon (11:46)
Thank you for having us.
Josh Raulerson (11:47)
Before we get into the study, could you each say a few words about your respective organizations about climate and RFF and, uh, what led to this collaboration?
Angela Pachon (11:56)
Sure. I can, I can start. I’m the research director of the Kleinman Center for Energy Policy, and at the Kleinman Center, one of our objectives is really to, uh, first educate the future leaders in the energy sector, but also to provide research to inform the public and policy makers about the most prominent issues on energy policy.
Maya Domeshek (12:22)
So I’m a research associate at RFF, Resources for the Future. It’s a non-partisan environmental economics think tank based out of Washington DC, and we do analysis about state and federal policy. I primarily work on electricity sector modeling,
Angela Pachon (12:40)
And given the, the large experience of RFF and one of our co-authors in this study of carbon markets internationally, and here in the U.S., we thought there would be this opportunity to, to make this study so that we can contribute to this debate. I mean, this is a long-term debate that this is not new, but we saw since this is in the court and the governor has to make a decision at some point of, depending on, on the court decision, we thought there would be this opportunity to review with the new information, because we have to consider that in the past, I mean, this has been thoroughly started this topic and about the cost and benefits of Pennsylvania joining RGGI, but we thought there would be like different factors, and that’s why we decided with the experience that RFF has in this area and as the Kleinman Center, we wanted to provide this information and have more recent and very objective study.
Josh Raulerson (13:54)
As you said, this is a, a long running debate, a lot of history, and certainly a lot of research has gone into it already. Could you sort of summarize what the existing body of research indicates about Pennsylvania participation in RGGI? I realize that is a real, really big question, but broad outlines, what was the picture that had been painted prior to a couple of years ago?
Maya Domeshek (14:14)
So, a number of studies had been conducted on this, uh, in 2019, 2020, 2021, there was one commissioned by the Pennsylvania Department of Environmental Protection, one performed, uh, by Penn State, and one performed here at RFF, actually. And at the time, those studies had indicated that if Pennsylvania joined RGGI, the state would see lower emissions and there would be lower emissions nationally. There was some debate about how much leakage would occur as a result of the state joining RGGI. And those studies also indicated that if Pennsylvania joined RGGI, there would only be a small impact on electricity bills, but there would be some kind of impact. And most of the studies really emphasized that, you know, the biggest uncertainty around the impact of RGGI was gonna be how the state would use the revenue from the program. So for example, the RFF study looked at how the state could use the revenue from the program to reduce leakage. And, uh, some of the other studies had looked at how the state could use the revenue to promote the growth of renewables or to insulate consumers. So there had been a lot of focus on this question of what to do with revenue. Generally speaking, I think at the time, most of the studies agreed that joining RGGI would lead to a decrease in fossil emissions in Pennsylvania, but it didn’t really seem like joining RGGI would have much of an impact on renewables growth in Pennsylvania. And so several studies, both the Penn State one and the RFF one pointed out the necessity of maintaining the APS and the sort of the complementarity of those two programs.
Josh Raulerson (15:55)
So when you look at what’s changed since those studies were produced, why did those need to be updated? What new information had to be factored in?
Maya Domeshek (16:03)
Well, I think there are two big things that have changed since 2021. Gas prices are kind of different than they were at that time. They’re higher now because of the war in Ukraine. And then more importantly, the federal government has passed the Inflation Reduction Act, which is providing large numbers of subsidies for renewable generation and also especially for renewable generation in locations that are in the process of getting rid of their fossil generation, so that there’s sort of energy communities bonuses. So now there’s all this potential revenue from the federal government that could subsidize renewables and could make it cheaper and easier for Pennsylvania to comply with RGGI when they join.
Josh Raulerson: (16:47)
And so the purpose of the study then was to, you know, account for those, those new factors and update the projections. What questions were you seeking to answer with this update? What were the assumptions that had to be built in?
Maya Domeshek: (16:59)
So we were hoping to think again about what RGGI would mean for emissions in Pennsylvania and nationally. And we were hoping to learn what joining RGGI would mean for allowance prices — that is the price of buying a permit to comply with the program in RGGI. And then we wanted to know about the impact on electricity prices, because that’s something that’s come up over and over again in the debate around joining RGGI. And we wanted to know about the impact on what would be built in the state. Because if we think there are a lot of new subsidies for renewables, maybe the program is going to have a different effect on the generation mix in Pennsylvania than the prior studies indicated.
Angela Pachon (17:40)
I may add that in terms of jobs for previous studies, they went to model, uh, the jobs considering the use of the revenues for the state and how they’re gonna be used and how that will impact jobs. In our case, we didn’t model jobs, but we, we provided this report some observations since this has been an area of much debate about what would be the job situation for this sector. And that’s why we, I mean, we didn’t model those, but we provide some observations and especially considering the amount of renewables that the model is the result of the model are showing.
Josh Raulerson (18:25)
So, and of course the broader context is a legal challenge to Pennsylvania’s participation in RGGI. Meanwhile, we’re kind of waiting to see what direction Governor Shapiro is gonna take, but there have been some hints as to what he’s looking for, and I think that’s what, you know, a lot of people are watching. You’ve already talked about some of them, and I’m interested in how this study informs the question of, for starters, as you said, reducing emissions is a big thing for the governor as you’d expect. He also talks about jobs and he talks about consumer impacts. So starting with the first of those, I mean the really the, the reason for doing something like this, what will the impact be on carbon emissions in Pennsylvania? Looking beyond Pennsylvania through the PGM region and, and even nationally.
Maya Domeshek: (19:10)
We modeled two different versions of RGGI. We modeled a version where, well, we really modeled four different versions. We modeled two different rates of decline for RGGI. So the RGGI program going to zero in 2050, and the RGGI program going to zero in 2040. And then we modeled Pennsylvania either in or out of either of those two programs. And what we found was that when Pennsylvania is in the RGGI program, there are much lower emissions in Pennsylvania than when it’s outside of the program. And that’s because it leads to a much more rapid decrease in generation at fossil plants in Pennsylvania than would’ve happened if it were outside the program. We also find while some of that decrease in emissions in Pennsylvania is made up for by increase in the emissions in the rest of RGGI, which is what you would expect when you have a cap and trade program for a whole region, overall U.S. emissions are going down. And that’s, that’s really what matters. That’s like the global scale for this context. Pennsylvania emissions are going down, U.S. emissions are going down. So the program is doing what it’s set out to do.
Angela Pachon: (20:14)
And I may, I may add that even in this case, we, for emissions specifically, we did the model at the time we did it, we did not consider any regulation from the EPA that has been coming lately. Therefore, I mean the model does not consider that, but in considerations about leakage, I think that is going to be a big game changer because these regulations affect coal power plants all around the country. It’s not just Pennsylvania. And leakage happens when, I mean, these coal power producers may move to neighboring states, but these neighboring states are going to be facing also these EPA regulations and they are all in the same sort of situations and, and terms of, I mean, having to comply with already some regulations and the new proposed ones. So that, that in, in our view may minimize also the leakage which is that like emissions in neighboring states.
Josh Raulerson (21:21)
I wanted to ask, given what you’re talking about, the assumption has been for a long time that coal fired power generation is, is on its way out regardless of what happens, the EPA factor in this is, is recent enough that you weren’t able to fully grapple with it in this study? Nevertheless, from what you’ve seen, does RGGI affect that trajectory one way or another? Does the decline of coal speed up even more if Pennsylvania’s participating?
Angela Pachon: (21:45)
Yeah, I think, as you said, even without RGGI, the trend that we are seeing is that the, the closure of coal power stations. Obviously the speed without RGGI will be, is to be seen on, on the implementation of these EPA regulations. But right now there are many of these plants that are scheduled to close because of the economic conditions of, of these power plants that, I mean are very, they’re difficult to compete with gas and and renewables that are coming on a, uh, even more subsidized than they were before because we are having the EPA. So if those renewables get to be built, then that closure is gonna be accelerated. So that trend is happening, but we see that there are, uh, uh, I mean, concerns at PJM about that speed. And that’s something also like, I mean, we’re, we are waiting to see what is gonna happen also, for example, where capacity markets and now that the auction is delayed, so there are gonna be, whether these plants will keep operating just for the sake of, of waiting, the renewables coming. But long term and our study as I guess the projects up to 2030 is clearly that many of these closures are happening. So and if they join RGGI, and I let Maya explain more what our model found, it’s, uh, obviously there’s an acceleration.
Maya Domeshek: (23:29)
As Angela said, you know, coal plants are shutting down already because they can’t compete in cost with gas and renewables. And because they have a lot of co-pollutants that cause public health harms and people know that, and the RPA regulations that are attempting to deal with that fact. So you know, the coal plants are closing. I think what joining RGGI does for this situation is that it accelerates the decrease in generation at those coal plants and it prevents backsliding. So if, for example, there’s a big increase in electricity demand in Pennsylvania going forward, and you know, those who are hoping to electrify the economy are certainly hoping for that increase in demand. You could imagine coal plants could ramp up to meet that demand, but if you have a program like RGGI that’s sort of a backstop to keep the plans from going, oh, nevermind actually we would like to stay online. We don’t wanna retire after all. I think even though we see a lot of these retirements happening anyway, it’s important to understand the backstop function that RGGI provides for the coal plants and also the long term function it may provide in, uh, helping the gas plants also decrease their generation
Angela Pachon: (24:40)
And the certainty no, that, that they, they’re gonna close because so far, without RGGI Maya said, investors may think that there may be an opportunity, but with with RGGI, there’s, there’s going to be way more certainty that the investment should go to either renewables or, or even gas.
Josh Raulerson (25:01)
One of your big findings, I think was to do with the marginal cost of reducing emissions seemingly lower than had been previously assumed. Why is that?
Maya Domeshek: (25:11)
Well, it’s two things. One, it is that it’s cheaper to build renewables now than it used to be. So it’s cheaper to comply with the program. The other is that there are a lot of potential emissions reductions in Pennsylvania. There are a lot of low cost emissions reductions. In Pennsylvania, it’s, it’s relatively easy to turn down a coal plant and slightly turn up a gas plant. And that means that, you know, the entirety of the RGGI region now has low cost emission reductions available. And so the allowance price for the whole region is a lot lower in the other states in the region. Some of those low cost emissions reductions have already occurred. So without Pennsylvania, the rest of the RGGI region has a higher marginal cost of abatement than with Pennsylvania in the region.
Josh Raulerson: (25:59)
Maya, you mentioned sort of ancillary benefits of reducing emissions overall for air quality and which obviously has public health implications. Could you elaborate a little bit more, explain why that is and whether there are other non, you know, climate specific benefits to be reaped in terms of air quality and public health in the RGGI scenario?
Maya Domeshek: (26:18)
Yeah, absolutely. So coal plants are major producers of SO2 and NOₓ, which on top of being rather unpleasant in and of themselves can form secondary fine particulate matter as they travel through the atmosphere. And as we know, fine particulate matter is really one of the most dangerous pollutants. It’s a major cause of premature mortality. So reducing the generation at coal plants has an immediate health benefit from reducing the amount of fine particulates that people are going to be breathing. There are also, you know, other pollutants associated with coal: mercury, you know, leaching from coal ash, etcetera. But the fine particulates are the things that are often easiest to quantify. So that’s, that’s a major non-climate benefit of joining the program.
Josh Raulerson: (27:05)
So when we look at the governor’s criterion that whatever decarbonization policy he pursues needs to create and support good jobs for Pennsylvanians, how does your study answer that question? How do we expect employment to be affected in the various scenarios that you modeled, we’re assuming some jobs will be lost at coal fired plants? To what degree will those be offset? Potentially, and you know, again, recognizing that a lot of this hinges on decisions made about what to do with the revenues, but what are you expecting to see, by way of job creation and retention?
Angela Pachon: (27:36)
I may, I may clarify that we didn’t model jobs particularly for this study, but we have some job observations considering that the results that we have about the share of generation and the amount of renewables. So yeah, in terms of jobs, there’s gonna be obviously job losses in the coal power sector because of the closures that we just spoke about. But at the same time, I mean, this is not a new trend in Pennsylvania. Already, the renewable sector among the power generation jobs is the most important sector in, in, in terms of jobs. Wind and solar are, are, I mean, among the, the generators are the most that those that put more jobs for the state. So this trend will continue and, and this job creation is gonna be quite large, especially because all, all the, all the subsidies coming from the Inflation Reduction Act and, and, uh, the incentives to build this new renewable capacity.
So there is, I mean, and, and this has been this tremendous debate about like, I mean, you’re, you’re killing the, this industry and this industry, I mean, in terms of power generation for fossil fuel, I mean, the impact at the state level is minimal because jobs for the power generation from fossil fields represent less than 0.1% of all the employment in the state. So if there are going to be a reduction, especially from the coal power sector, we can see that this may not be materialized. So that’s from when the, the jobs from the coal power generation. Then there’s also like, oh, you’re gonna kill the gas industry because I mean, Pennsylvania is such a gas producer, and basically, this may act as a tax for gas. And the truth is that only 11% of the gas produced in Pennsylvania goes for electricity production.
So that means that the large demand for gas from Pennsylvania gas comes from other sources. And in fact, 70% of the gas produced in Pennsylvania is exported out of the state. So the drivers of Pennsylvania gas is not electricity produced in Pennsylvania. It’s going to be other factors like the demand for LNG, for example, at the international level. It’s going to be also the rate of electrification all across the U.S. because that’s, I mean, the, the, this replacement of gas, that’s where it’s happening. It’s not on the internal Pennsylvania consumption and also the demand for these gas going to this petrochemical industries like and, and other sources. So, we can see that, I mean, because joining RGGI and perhaps having the closure of these power plants in terms of jobs is not, we, we can foresee, even if we didn’t model that is not material.
On the other side, it is not material for the state, but for local communities it’s going to be very important, especially for the coal communities. I mean, these are going to be job losses very localized. And these are, I mean, I, the governor wanted also a just and equitable transition. And I think with RGGI, there is this opportunity to spend the revenue that the state may get on these communities and, and that making sure that this energy transition, I mean, they can benefit and there’s gonna be, they’re gonna be all job creation in the renewable sector, and there is opportunities for these workers to transition to these new industries and that they are an effective, I mean either a compensation or make sure that the Inflation Reduction Act provides many opportunities also for, for coal communities. So the state has a role on attracting those resources and making like perhaps like this, that this investment happens here in these communities.
Josh Raulerson: (32:22)
Let’s look at that then, the upside potential, which is you said, you know, early on it is one of the big revelations here that with Inflation Reduction Act money in the mix now there’s a lot more potential to expand and, and scale up renewables a lot quicker than people were expecting. Could you tell me more about that and how it would affect employment, particularly as you said in communities that have been affected by job losses connected to coal generation?
Angela Pachon: (32:47)
Yeah, there are various specific, in terms of renewable generation, well, there are going to be producer incentives really just for the creation of this to setting investments on renewable production. So that’s one side, and that’s at the national level. That’s not just Pennsylvania, but if there is a clear signal and for example, a clear signal could be joining RGGI that they may be where these coal power plants all these interconnections are ready, investors may use them in some way because right now there’s this really delay on trying to get, and there’s this long long queue in, in PJM for all these renewables to come along. And so yeah, if, if those renewables get to be built in the next five years, they may get all these subsidies. That’s one point.
Then there is also for clean industries to be located near coal communities. All these clean industries, and we’re gonna see a lot of industries for battery manufacturing. And if those can get to be located in Pennsylvania, these producers can get some benefits if they are located within those communities. But that means like, I mean, making this state attractive and my, when I say attractive is like this workforce is qualified for these new challenges then perhaps obsolete. Now it’s very focused on the coal industry starting to think of how to do this transition. I mean, having this workforce that can participate in these investments obviously makes the investment more attractive.
Josh Raulerson: (34:44)
Well, I think that probably gets to the question of how are revenues reinvested, and that’s sort of the big question mark in, in everybody’s research, that’s unknown. But first, could you enumerate some more possibly indirect effects on job markets in Pennsylvania? You mentioned batteries. Are there other ways in which a rapidly expanding renewable sector kind of brings other industries or sectors along with it? Is that something you looked at?
Angela Pachon: (35:10)
Well no, we didn’t look at that, but it is obviously when studying the Inflation Reduction Act, it’s like the possibilities are also producing like clean hydrogen. There’s an, there’s gonna be an opportunity. Also, the EPA is mandating carbon capture storage for gas power plants. And those plants can get subsidies from, from installing this carbon capture and storage if they, if, if they do it in the timeline of the, I think next 10 years. So those are also subsidies. And when I say subsidies, those subsidies attract investment and those investments create jobs. And so the Inflation Reduction Act goes to all these areas, is just beyond renewable energy.
Josh Raulerson: (36:08)
Another slice of the power portfolio in Pennsylvania that has been struggling due to market conditions and other factors is, is nuclear, right? Whereas with coal joining RGGI accelerates the decline of coal, with nuclear, maybe the other direction. Can you talk about nuclear plants that, you know, might have a little bit of a longer lifetime, are we even possibly looking at new investments in next generation nuclear power generation going forward?
Maya Domeshek: (36:37)
A lot of the earlier studies on RGGI in Pennsylvania focused on the impact of RGGI on nuclear because there’s a lot of concern about nuclear retirement. In fact, the RFF study from 2019 focused a lot on keeping nuclear online using RGGI. That’s a little bit less of a concern now because the IRA and the IIJA provide subsidies to keep existing nuclear plants online because the federal government thinks that is a priority for maintaining the existing clean generation sources. Those nuclear tax credits are actually a little bit adjustable based on how much revenue the nuclear plant is receiving. So I think RGGI is going to keep the nuclear, help keep the nuclear plants online, but the federal government was also going to try to help maintain that. So I don’t think RGGI is playing a make or break role in the maintenance of existing nuclear plants now, thanks to that federal investment.
As to whether there will now be new nuclear plants in Pennsylvania, we didn’t represent new nuclear plants in our model. But, you know, it is worth noting that the tax credits from the IRA, you know, they are technology neutral so they could apply to any type of zero-emissions technology. And, you know, having an, you know, a clear policy signal in Pennsylvania that the state is planning to go to zero emissions electricity could lead to investment in other types of zero-emissions technologies. But I mean, presumably solar and wind will be the principal ones going forward since they’re so well tested and well subsidized.
Josh Raulerson: (38:09)
Angela, you mentioned the need for a skilled workforce in Pennsylvania to, to kind of make this leap. I’m curious about resources that RGGI might be able to unlock to make that transition a little bit smoother for some communities. Again, recognizing these are decisions that would be made in the future, but looking maybe to the example of other states that are already within RGGI, what might we expect by way of opportunities to support things like, you know, retraining or employment security, I guess, for people in communities that would otherwise be negatively affected?
Angela Pachon: (38:43)
Yeah, that’s, that’s a good point because it gets to how the revenues from the treasury are going to be expanded and from the studies that have been,, undertaken from other RGGI states. And these revenues could definitely help, first of all, the bills to reduce the billing impact for, for repairs. But in some more larger states, like some of these programs for retraining have happened with the Inflation Reduction Act. This is something that so many states are looking at right now and how to do it. So they have also spent revenues on energy efficiency. And it seems that, uh, I mean energy efficiency and retrofitting of buildings, this is one of a major job creation alternative because this not only reduced energy wheels, but at the same time the amount of workforce required is huge. And precisely right now there is a shortage and that shortage is making like a very high cost for doing these retrofits, especially in low-income communities. So that’s something that the revenues could, a very clear case to create, uh, jobs that also alleviates the cause for low income communities.
Josh Raulerson: (40:19)
If we could shift to looking at the governor’s other major priority for decarbonization and that’s protecting consumers and great payers, what does your study suggest RGGI participation for Pennsylvania? How that would affect energy costs for futility customers here. Do we differentiate between the supply cost and the actual retail price that people are paying when they open their electric bill? How do the various Pennsylvania in out of RGGI with different declining cap rates compare with the non RGGI scenarios at that level in terms of just like cost to consumers?
Maya Domeshek: (40:55)
Yeah, so, you know, as you’ve indicated a major concern of Pennsylvania politicians has been that joining RGGI would raise electricity rates. And I think, you know, people have often looked at the current allowance prices in RGGI and the current electricity mix that the state has and assume that if you know the state were going yo end up paying the current allowance prices and maintain its current electricity mix that consumers would see a increase in their rates. But that’s not really the right way to think about it because when Pennsylvania joins RGGI, first of all, the allowance prices change as we discussed earlier because you know, it’s easier to reduce emissions in Pennsylvania than it is to reduce emissions in the rest of RGGI on average. And then the generation mix changes over time as a result of being in RGGI.
So, you know, because we have this policy signal saying, you know, you have to reduce fossil emissions, maybe it’s time to increase generation from cleaner sources. The generation mix gets cleaner and overall, and over time the impact of the allowance price gets smaller and in fact the electricity mix can get cheaper than it would have been in the absence of RGGI. So in particular in our modeling, we found that in the case where RGGI continues to decline at 3%, electricity rates in 2030 are about 1% higher than they would’ve been in the absence of RGGI, but we found that in the case where the program goes to zero more rapidly zero by 2040, then actually the electricity rates are slightly lower in 2030 than they would’ve been in the absence of RGGI — close to, you know, minus 0.6%. So I think kind of what that tells us is, first of all, the impact is really small.
And second of all, that there, there’s a real potential for cleaning up the electricity sector to reduce electricity rates in the long run, especially because of the existence of the IRA, which is bringing in so many subsidies to the state. You could in the long run, see rates fall if the program moves faster. But as you also indicated, it’s useful to differentiate between rate impacts and bill impacts. So even if we find that in some cases electricity rates could go up by 1%, which is pretty small, the impact on bills could be different. The state could decide to devote some of the revenues from the program to directly reducing electricity bills for consumers. That would be, so even if the rate went up, your bill could go down because there could be a subsidy on it. Alternatively, the state could devote some of the revenue to energy efficiency programs that would reduce household electricity usage. So even if your rate went up a little bit and your usage went down, your bill could be held constant or could go down. And then there are also other uses of the revenue for, uh, you know, demand side, electricity generation or storage. So there’s just a lot of things that could be done with revenue that could mean that the bill impact are almost nothing, even if there were a rate impact. But finally, I think it’s important to note that in the absence of RGGI and in the absence of the inflation reduction Act, electricity prices were on a sort of upwards trajectory. The introduction of the Inflation reduction Act has pushed that trajectory down so that electricity prices are not rising as much, or in some cases are falling because the Inflation reduction Act is transitioning the country to cheaper resources and then it’s subsidizing those cheaper resources. And so really any change to electricity prices in Pennsylvania that relates to RGGI is very small relative to the change to electricity prices that’s bringing brought about by the Inflation reduction Act.
Josh Raulerson: (44:45)
So again, the next stage of Pennsylvania’s participation or non-participation, RGGI, is gonna depend on what happens with this court decision and with the governor’s position as we wait for that next shoe to drop. As researchers, I’m wondering, like, what are you going to be watching for what information would still be useful to know what, what questions remain unanswered at this point?
Angela Pachon: (45:07)
Yeah, obviously is what’s going to happen about reliability issues at the PJM level. I think that’s a big, big question mark and something to follow because any market mechanism that may shift right now, like the cost curve at PJM in order to make some of these gas power plants more competitive. So that’s something to be saying and, and that this is a huge proceeding coming up and, and we saw in the past, like minimum offer price of floors for PJM. So I think that’s something to follow in terms of what’s going to happen in terms of reliability and whether reliability becomes so much of an issue. We saw, like there has been very good developments in terms of accelerating the siding of renewables and let’s hope that gets effective in a way to accelerate the construction of renewals because that’s going to be also key for this energy transition. And if that gets sold, then the reliability is not as an issue as it is, it could be seen right now.
Josh Raulerson: (46:29)
Angela Pachon with the Kleinman Center for Energy Policy at Penn. Maya Domeshek, Resources for the Future, authors of this report that we’ve been talking about today. Thank you so much for your time and your insights walking me through what you found.
Maya Domeshek: (46:41)
Thank you for having us.
Angela Pachon: (46:42)
No, thank you Joshua Huntings.
Josh Raulerson: (46:50)
As I mentioned earlier, this interview is the first in a two part series looking at new research on Pennsylvania’s prospects as a participant in the Regional Greenhouse Gas Initiative. On the next episode, we’re gonna drill down on how RGGI helps Pennsylvania ratepayers who are expected to see lower electric bills than they would without it, and also on the nearly $1 billion federal dollars at stake under the Inflation Reduction Act. We’ll have that conversation for you on July 21st. We post new episodes every other week here on Pennsylvania Legacies. You can find them on the PEC website, pecpa.org, pecpa.org. All of our past podcast episodes can be found there as well. You can stream them right there on the website or subscribe using your mobile device and take us with you. Never miss an episode. The website has much more on P’S policy advocacy work, focusing on energy and climate issues. We’re also active in the watershed space and we do quite a bit of work on outdoor recreation and trails. You can get caught up on everything PEC is doing in those areas and more by visiting the website at pecpa.org. That’s all for this time until the next one. For the Pennsylvania Environmental Council, I’m Josh Raulerson, and thanks for listening.