Water is Still Wet and RGGI is Still Unconstitutional
On Monday, September 9, 2024, PMA filed an amicus brief before the Pennsylvania Supreme Court, urging the affirmation of the Commonwealth’s Court decision that then-Governor Wolf’s unilateral entry into the Regional Greenhouse Gas Initiative was unconstitutional. Governor Shapiro has chosen to extend the legal battle, appealing the decision before the Supreme Court to attempt to preserve executive authority.
PMA submitted the brief alongside the Industrial Energy Consumers of Pennsylvania, the Pennsylvania Energy Consumer Alliance, the Pennsylvania Chamber of Business and Industry, and the National Federation of Independent Business.
The basis of PMA’s argument in the brief is that it’s long been Pennsylvania law that a fee imposed by an agency must bear a reasonable relationship to the cost of the regulation. If that fee raises a disproportionate amount in relation to the regulation, it is then a tax. In the case of RGGI, only six cents of every dollar collected will be used to implement the program. The power of taxation is clearly defined as the responsibility of the General Assembly. Since the entry of RGGI was implemented via executive order by then Governor Wolf without the approval of the Pennsylvania General Assembly, this tax is unconstitutional.
At the auction on June 5, 2024, the price for a CO₂ allowance was $21.03. At that price, Pennsylvania’s energy producers could pay the Pennsylvania Department of Environmental Protection (DEP) more than $1 billion annually. By their own admission, DEP needs only six percent of the funds collected to administer the RGGI program and wants to use the surplus hundreds of millions of dollars each year to fund programs which DEP has neither conceived nor implemented.
RGGI has gone from bad to worse over the past several years. Since Governor Wolf initiated the RGGI rulemaking process on October 3, 2019, the allowance price has increased by over 300 percent, from $5.20 at the September 4, 2019, auction to $21.03 at the June 5, 2024, auction. While these auction prices will surely shutter environmentally compliant power plants throughout the commonwealth, it’s ultimately the end users of electricity that will pay this tax as the costs are passed on.
Manufacturers require energy, and a lot of it, to turn raw materials into finished goods. Higher energy costs will lead to higher production costs, which will lead to higher priced goods for the consumer. These compounding costs will greatly impact Pennsylvania’s manufacturers, industrial, and commercial sectors, as well as each and every consumer.
According to a study completed by IECPA, “due to the increase in the auction price of CO₂ allowances, the total annual increase in electricity costs in the Commonwealth, including residential, commercial, and industrial users, could approach $870 million per year. This represents a projected annual increase for a large manufacturer of the kind represented by IECPA and PECA of roughly $2.7 million per year, which equates to more than 30 manufacturing jobs and 160 supporting jobs for a single large business.”
But it’s not just large manufacturers that will be impacted. NFIB has found that, for approximately 35 percent of small businesses, energy constitutes one of their top three expenses, and concerns small businesses more than cash flow, poor earnings, and training and managing employees in survey results. Each year, America’s small businesses, including sole proprietorships, spend close to $60 billion on energy. These are not costs that can be easily passed on to consumers in a normal environment, let alone an inflationary one.
The Commonwealth Court’s ruling summarized the argument well: “Stated simply, to pass constitutional muster, the Commonwealth’s participation in RGGI may only be achieved through legislation duly enacted by the Pennsylvania General Assembly, and not merely through the Rulemaking promulgated by DEP and EQB.” We concur and call on the Supreme Court to affirm the Commonwealth Court’s ruling.
