Power producers in the northeastern and Mid-Atlantic carbon market known as the Regional Greenhouse Gas Initiative paid a record price for carbon allowances in the first auction of 2022, which netted Virginia $74.2 million for flood protection and low-income energy efficiency programs.
The clearing price for allowances, which producers must buy for each ton of carbon dioxide they emit, rose to $13.50, exceeding the $13 record set in the December 2021 auction.
Under current state law, $33 million of that money must go to the Community Flood Preparedness Fund, which supports local flood protection efforts, while just over $37 million must go toward low-income energy efficiency programs run by the Department of Housing and Community Development.
But while the proceeds signal another year of RGGI revenues that far exceed initial projections by state budget officials, Virginia’s future in the market remains uncertain.
Republican Gov. Glenn Youngkin remains committed to withdrawing the state from RGGI, which he has said has not reduced emissions while imposing unnecessary costs on Virginia electric utility ratepayers.
Youngkin and Republicans in the General Assembly are trying a variety of strategies to remove Virginia from the regional carbon market, from budget language to legislation to an executive order.
Legislation to pull Virginia out stalled this session after Democrats in the Senate blocked proposals to repeal the 2020 act authorizing RGGI participation. And while the budget proposed by the Republican-controlled House of Delegates does not include language recommended by Youngkin explicitly repealing the act, it would prohibit three state agencies from spending $371.2 million in expected RGGI funding over the next two years.
Earlier this month, 26 environmental and energy groups urged budget negotiators to reject RGGI provisions, arguing that “these sorts of major policy changes cannot be fully evaluated and studied in the budget process.”
Whether Youngkin can withdraw Virginia from RGGI without legislative action remains disputed. Nevertheless, the governor’s Executive Order 9 ordered the Virginia Department of Environmental Quality to issue a report on the costs and benefits of RGGI participation as well as an emergency regulation rolling back existing rules on the books.
The report and proposed regulation were due Feb. 14 but have not been made publicly available. A spokesperson for Youngkin did not provide a copy of either in response to multiple requests.
LS Power relief rejected again
Democratic lawmakers this session also rejected proposals to offset some of the RGGI compliance costs being borne by LS Power, a large generation, distribution and transmission company that operates a power station in Doswell.
While Virginia’s electricity markets are regulated, just over a quarter of the emissions that Virginia producers are required to purchase allowances for come from merchant generators, or unregulated power producers that sell power to the broader regional grid.
Public data on annual emissions from the RGGI CO2 Allowance Tracking System shows eight facilities in Virginia that are not operated by the regulated utilities and must buy allowances at auction.
Of those, LS Power’s Doswell plant produces the most emissions, followed by the Potomac Energy Center in Loudoun, the Tenaska plant in Scottsville and a cogeneration facility in Hopewell.
Since 2020, LS Power has been asking the General Assembly for a special carveout in the RGGI law that would let it purchase carbon allowances at a discounted rate.
The company has argued that it needs relief from the more than $50 million in costs it will incur through 2025 as a result of being required to buy carbon allowances through RGGI auctions. Long-term contracts to sell power from the Doswell plant signed in 2016 and 2017 prevent LS Power from passing on its allowance costs to buyers.
While several other states that participate in RGGI have offered protections for companies locked into long-term power contracts at the time the state joined the market, Virginia has chosen not to do so.
“This has left Doswell saddled with the prospect of absorbing certain compliance costs that, as far as we know, no other 25-megawatt or larger electricity generation company in Virginia must absorb,” LS Power Managing Director Matthew Mitchell wrote in a February letter to the Senate Finance and Appropriations Committee.
All plants with a capacity of 25 megawatts or more must purchase carbon allowances under RGGI.
Democrats rejected LS Power’s request in 2020 on the grounds that it would result in revenue losses for the state that would otherwise be channeled to flood protection and low-income energy efficiency programs.
This year the company tried again, later amending its plea to cut down the amount of costs the General Assembly would allow it to avoid from approximately $50 million to $30 million.
Nevertheless, Senate Democrats again killed the legislation.
“I’m not without sympathy for LS. That being said, two years ago, in this very room, we hashed this out ad nauseum,” said Sen. Lynwood Lewis, D-Accomack, during one committee hearing. “LS is a large sophisticated company with lots of smart people and resources available to it. And they made a bad business decision in an environment where this train was coming down the track. Other people made smarter decisions.”
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