By Christen Smith

BALTIMORE — State environmental officials worry about PJM’s involvement in carbon pricing for very different reasons, depending on where their states sit along geographical — and economic — lines.

For agencies in PJM’s eastern territory, “how” matters much less than “why” states might implement carbon policies. But to the west — where fossil fuels dominate — the inverse appears to be true.

During a panel discussion Monday on state carbon policies at the Organization of PJM States Inc.’s (OPSI) annual meeting, environmental officials from some PJM states expressed doubts about the viability of a federal carbon tax and said cap-and-trade programs, like the Regional Greenhouse Gas Initiative, would more effectively achieve emissions targets popping up across the RTO’s footprint.

“We are still talking carbon tax versus a cap-and-trade, [and] I think the important thing is we price carbon effectively and keep a few principles in mind,” said Chris Bast, deputy director of the Virginia Department of Environmental Quality. “A tax gives price certainty, and cap-and-trade gives a reductions certainty.”

Bast joined officials from Kentucky, Maryland and Pennsylvania on the panel. He said states should consider science-based policies that don’t harm marginalized communities, and that PJM itself should investigate how the broader energy transition from fossil fuels to renewable resources could unfold regionwide.

But Kentucky Secretary of Environment and Energy Charles Snavely objected to involving PJM in any carbon pricing scheme because his state’s economy depends on cheap and reliable coal generation, which attracts industry and keeps electricity bills low for its poorest residents. That makes early retirement of fossil fuel plants politically and economically untenable.

“Kentucky does not have the intention to continue to be a coal-fired state, but we will not shut something down prematurely and put that cost on our citizens,” he said.

The Carbon Divide

PJM began studying carbon pricing impacts on the wholesale market last year and recently assembled a stakeholder task force to prepare for incoming state policies as more governors across the region adopt aggressive clean energy targets.

Panelists agreed that PJM faces a challenge not experienced in other RTOs and ISOs considering carbon pricing: a patchwork of states with competing political and economic interests that fear the financial and environmental impacts of each other’s policies.

That’s where consensus ended.

States on the RTO’s western border, like Kentucky and West Virginia, worry PJM will implement carbon pricing in a way that disadvantages their coal-heavy generation and leaves their poorest customers footing the bill for clean energy programs in the east.

“It is our opinion that PJM is enabling the policies of certain states at the expense of others,” Snavely said. “We will reconsider our participation in PJM just out of necessity. It appears to me that a lot of this is a competitive move by some of our members to further their economic interests, and Kentucky will further our own interests too.”

States pursuing clean energy goals, however, said an ill-designed PJM carbon price mechanism could inadvertently punish them as well, by building carbon costs into the offers of their cleaner plants. That could lead to the dispatch of cheaper — and more polluting — fossil fuel-generated power, one facet of a phenomenon called “carbon leakage.”

“Markets work best when prices tell the truth about costs,” Bast said. “I pay to throw away my trash, yet we are allowing unlimited carbon dumping into the atmosphere for free. In order to tell the truth about what that costs us, we have to account for all of the costs of that.”

Ben Grumbles, secretary of the Maryland Department of Environment, said RGGI auctions have driven more than $650 million worth of investments in his state alone since it joined in 2007. He suggested that a similar regionwide attempt to price carbon and reduce emissions could work for PJM, but it’s up to the legislatures and state regulators to decide.

“Our message continues to be to other states — learn more about regional cap-and-invest plans like RGGI,” he said. “It will continue to grow in size and importance. As PJM looks at carbon pricing, from our perspective, it’s very important to come up with a goal that actually reduces greenhouse gas emissions and addresses leakage.”

Only two PJM states, Maryland and Delaware, participate in RGGI. The group says it has reduced its nine members’ power sector CO2 pollution by 45% over the last 14 years and provided $2.31 billion in lifetime energy bill savings. Participating states, either through regulation or legislation, cap power plant emissions and auction off credits to generators on a quarterly basis; generators purchase the allowances as proof of compliance. The proceeds return to participating states for reinvestment.

New Jersey will officially enter the program in January, and Pennsylvania Gov. Tom Wolf instructed the state Department of Environmental Protection to begin the process for joining earlier this month — a surprising move given the state’s wealth of shale gas and booming energy exports that bridge the east-west divide. (See Pennsylvania Governor Signs RGGI Executive Order.)

RGGI’s proven track record and existing framework appealed to Pennsylvania Environmental Protection Secretary Patrick McDonnell. He told the OPSI crowd that although the Keystone State remains the No. 2 producer of natural gas, the industry itself contributes to carbon pollution and presents a real challenge for achieving the governor’s clean energy targets. (See Pennsylvania Joins US Climate Alliance.)

“In our state, we’ve seen about a 12% reduction in greenhouse gas emissions, but we will see that ramp back up because it’s predominantly been driven by the retirement of coal,” he said. “RGGI is about giving us a pathway toward that cleaner energy future. Something has to be there to take up the load, and right now that is natural gas. What we don’t want to see is reversals.”

A Short Bridge

The importance of Pennsylvania’s gas supply in propelling RGGI’s success wasn’t lost on any of the panelists Monday — despite a changing and more hostile regulatory environment for new gas plants.

“The honest assessment of being on the path of greenhouse gas reductions is the transition from coal to natural gas, Grumbles said. “There is a role for natural gas. It is a bridge fuel, and the goal is to make sure [the bridge is] not unacceptably long or leaky.”

“I’d say don’t bite the hand that feeds you,” Snavely said. “What conversation would we be having today if it weren’t for West Virginia and Pennsylvania and Marcellus Shale? We wouldn’t have the technology without natural gas. When renewable technology is at a point when we don’t need to be backed up by natural gas, that’s fine; take natural gas out of the equation.”

The tension between the promise of renewable resources and the affordability of natural gas appears prominently in Virginia, Bast said, where changing attitudes have jeopardized some high-profile construction projects. (See Stalled Pipeline Overshadows Dominion’s OSW Project.)

“I don’t think it’s a secret that there are currently $12 billion in pipelines planned in Virginia to bring some of that natural gas our way,” he said. “But they are struggling to be finished.”

Dominion Energy’s Atlantic Coast Pipeline, which will run underground for 600 miles from West Virginia to North Carolina, remains tied up in federal court after developers lost a permit to cross 600 feet below a section of the Appalachian Trail last year. The Supreme Court will soon decide whether to hear the case, and construction on the project could resume before the end of 2019.

Likewise, two natural gas plants — including one of the largest in the country — have not yet broken ground, and doubt remains if developers ever will, Bast said.

“It’s not a switch that gets thrown tomorrow, and we need to make up the difference right away,” McDonnell said.