Carbon Tax on Track for Approval

Once again, both parties at the Virginia General Assembly has pushed forward doomed legislation on a proposed carbon cap and tax regime the state will soon impose on Virginia’s fossil fuel electric power plants, with the stalemate leaving Governor Ralph Northam free to move forward. It is like one of those choreographed fist fights in a movie where you can tell the actors have done this all before.

The Republicans in both House and Senate have pushed through on party line votes two bills to prevent the state from joining the Regional Greenhouse Gas Initiative without a vote of the legislature. As happened twice before, the Governor will veto them and be sustained. The requirement that any approval be by a two-thirds vote, as in House Bill 2611, seems excessive and makes a veto easier to justify.

Democrats in both House and Senate proposed bills to grab the revenue from the sale of carbon credits away from utility ratepayers and spend it on other things, confirming that one of the reasons behind this is just to tax Virginians. On the same party line votes, those bills died. The refusal to honestly estimate the amount of the carbon tax also makes opposition easier.

In the meantime, there is a March 6 deadline if you are burning with a desire to comment on the latest version of Virginia’s proposed RGGI regulation. If you liked the first version, subjected to comments in 2018, you’ll love this revision. If you hated the first version, you will see this one as worse.

It is very much the same, only more so – starting with the new beginning target for carbon dioxide emission from power plants of 28 million tons per year, down from the first proposal’s target of 33 million tons per year. During development of the regulation, it was predicted that emissions in 2019 would be close to 37 million tons. Can we drop that 20-25 percent by next year?

Try to muscle through the document and you find only a small priesthood understands this holy text. The Department of Environmental Quality has complied quite a bit of information on one web site, but it’s hard to find easy-to-understand information on what power plants are covered and which will run less or close completely as the state tightens the allowed emissions by 840,000 tons per year for twenty years.

Virginia’s membership in RGGI with the other Northeastern states is not mandated by federal law. It has been rejected by the General Assembly twice before, with the bills vetoed. Given that it is a one-state solution in the middle of a vigorous regional generation trading market, it likely will have only a minor impact on regional emissions and make a tiny dent in East Coast CO2 levels. As proposed, it will hardly be free, and only once implemented as its proponents intend will the real cost emerge.

Make no mistake, brilliant protests notwithstanding, the Air Pollution Control Board will vote for this revised regulation, which fills 35 tightly-packed pages in the most recent Virginia Register of Regulations. Governor Northam will most certainly sign off. Your electric bill will do down a little or go up a lot, depending on who you believe. The truth is probably in the middle, a noticeable but not crushing increase.

The State Corporation Commission, in a letter to a legislator, has entered a prediction of $3 billion to $6 billion over ten years of consumer costs on Dominion Energy Virginia, the company that is the main target of this effort. Virginia’s other investor-owned utility, Appalachian Power Company, runs only three natural gas generators in its territory, accounting for less than 200,000 tons of annual CO2 output.

Defenders of the proposal are sticking by their claims of minimal customer costs, mainly because as the regulation now reads, the utilities – not the state – will garner the revenue from the sale and purchase of carbon allocations and are expected to then pass the benefit along to their customers one way or the other, perhaps through the fuel charge. How that might work is not clear, and there remain concerns the utilities will just keep the money.

In its official comments to the 2018 version, Dominion stated that the various covered generating units (involving several owners, not just it and APCo) had emissions of more than 35 million tons of CO2 in 2016. If so, the target of 28 million for 2020 could prove onerous after all. The cap then shrinks 3 percent – 840,000 tons – per year for ten years, getting down below 20 million tons by 2030 and just above 11 million tons by 2040. Last year Dominion put the cost of RGGI compliance at just above $500 million over ten years.

If APCo’s three existing units account for less than 200,000 tons, which plants around Virginia must curtail operation or close entirely to drop output relentlessly by 840,000 tons per year? They will be Dominion facilities.

Despite their protests that they do not seek us economic harm, the advocates behind this want the gas and coal plants silent, closed, kaput, sayonara, but we ratepayers will remain on the hook for 100 percent of the capital investment. That adds credibility to the SCC estimate, which includes those stranded capital costs and the loss of revenue if those plants cannot sell power out of state.

A recent argument in the Virginia Mercury that costs of RGGI compliance will be minimal rest upon a couple of major assumptions. The first is that the allowances for carbon emission in Virginia will be “free.” The power plant operators will be handed allowances for 28 million tons, and then will enter the RGGI carbon auction to sell and buy with little or no net cost. The year after that, they get 27.16 million tons in allowances, and the year after that 26.32 million. The revenue continues to flow back to the customers.

But the environmental movement, many state legislators and the Governor do not want the proceeds to flow back to ratepayers. They have sought for several years to capture the money for other purposes, as is done in the other Northeastern states that belong to RGGI. In fact, the reason the proposal now calls for the money to flow back and forth to the utilities is the state Constitution prohibits a regulatory agency from creating and spending a tax.

Only the legislature can do that, and to understand how read House Bill 2735. It turns Virginia’s proposal into a true carbon tax, with the cash not being used to maintain electricity rates. It failed, but if the Democrats control a future legislature, expect a bill like that to pass. The SCC cost estimate, at the high end, assumes that a such real carbon tax comes soon.

For environmentalists to point to the “free” allowances in the pending regulation and argue that will protect us over time is a classic bait and switch. They want the real tax. They are blasting the Republicans who opposed the tax as planet-killers, and will do so in the coming election.

Another huge assumption? In a defense of RGGI membership an advocate in Virginia Mercury states: “Our nuclear plants, which provide a big chunk of Virginia’s electricity, are already operating at full capacity, and that’s not expected to change.” In 2030? Probably true. In 2040? Very, very doubtful, and expect the same environmentalists to be leading the charge to prevent any new licenses.

 

As with so many things in this arena, the big decisions are being made while the people who will bear the burden and pay the price are unaware.

A version of this column first appeared online in the February 7, 2019 edition of Bacon’s Rebellion.

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About Stephen D. Haner

Steve Haner is Senior Fellow for State and Local Tax Policy for the Thomas Jefferson Institute for Public Policy. He is a former reporter, lobbyist, state employee and political advisor, with an emphasis on tax and business issues. He may be reached at blackwalnut140@live.com.
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