The Virginia Chamber of Commerce appreciates the opportunity to comment on the State Air Pollution Control Board’s (Board) re-proposed “Regulation for Emissions Trading Programs” (9VAC5-140). Representing more than 26,000 members of the business community, the Virginia Chamber recognizes the need to strike an appropriate balance between environmental conservation and meeting the energy needs of the Commonwealth. However, the Board's revised regulation fails to amend the harmful provisions in the original proposal and would likely impose higher energy costs on Virginia businesses and residents without substantially reducing carbon emissions in the Mid-Atlantic region.

As you know, in December 2017, the Virginia Chamber released Blueprint Virginia 2025, a comprehensive business plan outlining the business community’s recommendations for making Virginia the best state in the nation for business. Throughout the stakeholder engagement process, the Chamber heard from business leaders on how reliable, affordable energy sources are paramount to improving Virginia’s business climate. The Regional Greenhouse Gas Initiative (RGGI) is not consistent with the recommendations in Blueprint Virginia and could jeopardize future business investment and economic growth in Virginia. As such, the Virginia Chamber encourages the Board to not move forward with finalizing this regulation or, at the very least, amend the proposal to alleviate the concerns of the business community.

Establishing a Cap-and-Trade System is Harmful to the Business Community

Ensuring competitive, affordable energy rates for businesses and residents is a central component of Blueprint Virginia’s energy chapter. Energy rates factor into state business rankings, and Virginia’s affordable electric rates, which were 12 percent lower than the national average in 2017, provide a competitive advantage compared to surrounding states, thus incentivizing businesses to expand and relocate to Virginia.[1] That said, joining RGGI or establishing a cap-and-trade program would eliminate that advantage by increasing electric rates for residents and businesses. In fact, analysis from the State Corporation Commission concluded that average residential customer bills could increase by $7-12 per month if Virginia joined RGGI.[2] Increased energy costs would also prevent existing Virginia-based companies from investing in more productive uses of their capital, such as facility improvements and hiring additional workers.

Finalizing the Board’s regulation as proposed and joining RGGI would likely lead to job loss in the power generation sector and have a negative impact on rural Virginia. Forcing the premature closure of Virginia coal-fired power plants – and other carbon-intensive generating units – would result in the unemployment of both union and non-union workers, who could face difficulty finding similar employment opportunities in the energy field. Further, many of the large coal-burning generation units in Virginia are in rural areas, which depend on these facilities for a sizable portion of their tax revenue. If plant closures were to occur in the short term as a result of RGGI, counties and municipalities would have to recoup that revenue by raising taxes on residents and businesses or cutting their budgets and reducing available services.

Further compounding the negative economic effects from RGGI, reductions in Virginia power generation would likely fail to accomplish region-wide environmental benefits due to carbon leakage, where emissions are moved from nearby states that have not implemented similar carbon regulations. Modeling performed for the Department of Environmental Quality by ICF projects that joining RGGI would result in a net decline of in-state generation in Virginia of approximately 2.3 terawatt hours in 2030 and a 33 percent increase of net electricity imports. Most of those imports would come from surrounding states in PJM Interconnection that have higher carbon-intensive profiles than Virginia.[3] Virginia’s carbon footprint from power generation is already significantly cleaner than most other states in PJM, so it is alarming that the Board would pursue a policy action that increases energy costs and jeopardizes job creation while not making significant progress on reducing carbon emissions throughout the Mid-Atlantic region.

Necessary Revisions to the Board’s Proposal

While the Virginia Chamber opposes the creation of a cap-and-trade program in Virginia, it has specific concerns with the Board’s re-proposed rule should Governor Northam decide to move forward and join RGGI. The Chamber requests that the Board consider the following proposed changes and clarifications to mitigate the most harmful components of the proposed regulation.

Increase Carbon Emissions Cap for 2020 and Beyond

Most notably, the re-proposed regulation reduces the starting emissions cap to 28 million tons, a more than 15 percent reduction from the Board’s original proposal. Under this revised base line, electric generators in Virginia would have to scale back or completely shutter existing facilities powered by fossil fuels at a faster rate. Utility companies and other businesses in the energy supply chain have already made significant investments to curtail carbon emissions, and this proposal would require more drastic emissions reductions and result in higher investments costs, which would be passed along to ratepayers. Joining RGGI and imposing an initial 28-million-ton carbon emissions cap would inevitably increase costs to consumers and threaten energy stability, therefore the Chamber requests that the Board increase the 2020 and subsequent emissions cap to a significantly higher threshold.

In addition to a more stringent initial emissions cap, the Board’s revised proposal allows for adjustments to the emissions cap each year after 2030 and includes a default option whereby the annual cap is lowered by 840,000 tons each year from 2031 through 2040 if the Board fails to make any adjustments. Not only does this provision create uncertainty for utilities looking to make long-term investments but it is also inconsistent with the RGGI model rule, a concern addressed in comments submitted by the RGGI states themselves.[4] It is important that regulations promulgated to join a larger framework should not be more restrictive than the existing requirements of such framework, which is why the Virginia Chamber urges the Board to remove this provision.

Clarify That Allowances Are Only Needed for Fossil Fuel Emissions

To reduce uncertainty within the rule, the Board’s finalized regulation should explicitly state that the emissions from biomass do not require emission allowances. Earlier this year, the U.S. Congress passed legislation recognizing the benefits of biomass as a carbon-neutral energy source, and even RGGI does not require allowances for emissions from eligible biomass combustion.[5] The Virginia Chamber believes that the Board should clarify that the pending proposal only regulates emissions from fossil fuel combustion, which has been the Chamber’s understanding throughout the entire rulemaking process. Several of our members have suggested that the Board re-insert the phrase “that have been generated as a result of combusting fossil fuel,” which was included in the original version, to confirm that the regulation does not apply to biomass.

Expand Industrial Exemption to Current and Future Facilities

Although the new regulation includes an exemption for carbon emissions from certain industrial facilities, the exemption only applies to units in existence as of January 2019. As a result, future industrial facilities with on-site generation above 25 megawatts would be subject to the carbon program, which would raise compliance costs on manufacturers and other industry-related businesses. This provision would disadvantage those businesses that decide to construct on-site generation facilities after 2019 and could undermine the Commonwealth’s ability to attract larger manufacturers, thus harming our business climate compared to other states. The Virginia Chamber requests that the Board amend its industrial exemption to include existing and future on-site generating facilities.

For the previously stated reasons, the Virginia Chamber opposes Virginia joining the RGGI program and encourages the State Air Pollution Control Board to pursue environmental policies that do not have a detrimental impact on the business community. That said, should the Commonwealth move forward with this proposal, we request that the Board increase the emissions caps starting in 2020, eliminate the emissions cap reductions over the 2031-2040 time period, recognize biomass as carbon neutral, and expand the industrial source exemption to include all on-site generating facilities.

Thank you in advance for your consideration of these comments.

Sincerely,

Barry E. DuVal

President and CEO

[1] U.S. Energy Information Administration, State Electricity Profiles, https://www.eia.gov/electricity/state/ (accessed March 6, 2019).

[2] Letter from William Stephens, Division of Public Utility Regulation, State Corporation Commission, to Delegate Terry Kilgore, Virginia House of Delegates, January 29, 2019.

[3] 2017 RGGI Model Rule – VA GCC 2018 Policy/Reference Case Update, Virginia Department of Environmental Quality, https://www.deq.virginia.gov/Programs/Air/GreenhouseGasPlan.aspx (accessed March 6, 2019).

[4] RGGI States’ Comments on Re-Proposed Virginia Regulation for Emissions Trading, February 21, 2019, https://www.rggi.org/sites/default/files/Uploads/Participation/2019_02_21_Virginia_Re-Proposed_Comments.pdf (accessed March 6, 2019).

[5] An Act Making Consolidated Appropriations for the Fiscal Year Ending September 30, 2019, and for Other Purposes, Public Law 116-6; 2017 Model Rule (revised), The Regional Greenhouse Gas Initiative, December 14, 2018.