Lawyers Spar Over Whether Pennsylvania Agency Has Authority to Issue Carbon Allowances to Power Plants

Pennsylvania’s highest court heard arguments over whether the state’s proposed membership of an interstate agreement to curb carbon emissions from power plants is invalidated by being a tax not authorized by the legislature.

Lawyers for the Department of Environmental Protection told the Pennsylvania Supreme Court in oral arguments on Tuesday that the agency has the authority to impose a fee on power generators by requiring them to buy state-issued carbon allowances if the state joins the Regional Greenhouse Gas Initiative, an agreement between 11 northeastern states.

But attorneys for power generators urged the court to uphold a November 2023 ruling by the Commonwealth Court, an appeals court, that concluded the fees would in fact be an impermissible tax. Only the state’s legislature, and not its executive, can impose a tax.

Pennsylvania’s proposed membership of RGGI was championed by the previous governor, Democrat Tom Wolf, but has been repeatedly challenged in court by Republicans who control the state Senate, and by the power industry, which would face higher costs if the state joined the agreement. The current governor, Democrat Josh Shapiro, appealed the Commonwealth Court ruling while introducing other regulations to drive down carbon emissions from industry.

In a brief in support of its appeal, the Shapiro administration argued that the appeals court had ruled incorrectly. “Commonwealth Court’s analysis went astray,” it said. “By any standard, the allowances are not a tax. Most importantly, they do not exist to raise revenue. Rather, they exist for a single and focused purpose: to control air pollution.”

The issue before the high court, said Thomas Hazlett, an attorney for the DEP, was whether individual members of the General Assembly, and energy-industry parties who don’t want to be regulated, should be able to stop an agency carrying out its legally required duties by claiming that the regulation encroaches on the legislature’s tax-raising power.

“The answer should be no,” Hazlett said. “The Commonwealth Court erred when it concluded otherwise.”

He argued that membership in RGGI would result in power producers being charged a fee whose proceeds would be used specifically to curb air pollution rather than being paid into the state’s general fund, as tax proceeds are.

The DEP’s authority comes from the Air Pollution Control Act, which allows the agency to set fees to fund its pollution-control program, Hazlett argued. 

“This is the statutory basis established in the rulemaking record, and this is exactly what the allowances are doing,” he said. “They are imposing fees on the regulated entities that support the pollution control program.”

Under questioning from Justice Daniel McCaffery, Hazlett acknowledged that Pennsylvania would be the only RGGI state whose membership had not been directly approved by lawmakers. But the attorney argued that the DEP went through an “exhaustive” regulatory process with the active participation of lawmakers, and the General Assembly—which has the authority to stop any regulation—chose not to halt the DEP rule that would implement RGGI membership.

David Fine, an attorney for a group of power generators, argued that allowing DEP to implement RGGI membership would illegally remove lawmakers from that decision.

“The question is whether executive agencies, under our Constitution, have the power to implement it without a single person in this building raising a hand in favor of it,” Fine said during the two-hour hearing at the state Capitol in Harrisburg. “The answer to that is no, they did not have that power.”

Requiring power generators to buy allowances under RGGI would be economically damaging, costing billions of dollars and jeopardizing jobs, Fine argued. “This will cripple an industry. This will imperil jobs, and it will also imperil investment in Pennsylvania business.”

Supporters say RGGI, which held its first allowances auction in 2008, has created thousands of jobs and saved consumers money, in addition to its climate impacts.  

While the DEP team faced pointed questions from some justices, Chief Justice Debra Todd appeared to support the agency’s arguments when she asked Fine to explain why the Air Pollution Control Act directs the DEP to use all fees collected under the law specifically to fight air pollution. “It is not general revenue. It is a fee,” she said.

Fine argued that the requirements of the law would not apply to RGGI. “The fact that a fee is created by the statute, and the proceeds of that fee are to be put into the Clean Air Fund, is of no moment because that’s not what RGGI does. RGGI is a sale on a private marketplace of the ability to emit carbon dioxide,” he said.

State Senate Majority Leader Joe Pittman, a Republican, said the arguments before the high court showed that the Commonwealth Court was correct when it ruled that RGGI membership would constitute an illegal tax.

“Once the Supreme Court rules on this issue, we will then be able to have serious discussions on the future of energy advancement in our Commonwealth,” Pittman said in a statement. “I look forward to the Supreme Court’s swift decision so we can quit wasting time on unnecessary lawsuits and focus on implementing strong energy policies to benefit Pennsylvania families and businesses.”

Robert Routh, Pennsylvania policy director on climate and energy for the nonprofit Natural Resources Defense Council, said Pennsylvania would be the biggest emitter of carbon pollution from power plants in RGGI if it finally joins the group. So the high court ruling—whose timing is unknown—will have big implications either way. The NRDC is not a party to the case but filed a friend of the court brief in support of the DEP.

“It will depend on what the opinion says, but if they affirm the [Commonwealth] Court, then this regulation would be voided, and the scope of the agency’s authority to set fees to control air pollution would be significantly reduced,” said Routh.