In October 2019, Pennsylvania Governor Tom Wolf issued an executive order directing the state's Department of Environmental Protection to join the Regional Greenhouse Gas Initiative (RGGI), the power-sector CO₂ cap and trade program in the Northeast. This follows an earlier executive order targeting a 26% reduction in emissions statewide by 2025 and 80% by 2050. Participation in RGGI is not yet a done deal - the state must proceed through a regulatory process over the coming years, during which time participation will almost certainly be challenged by the state legislature.

Despite the challenges ahead, the addition of Pennsylvania would be a momentous change for RGGI. In 2018, Pennsylvania's emissions from electricity were 81 million tons - or 8 million tons more than the combined total emissions from all nine currently participating states. These emissions reflect not only the size of the state, but a substantial amount of coal-fired generation - 13 GW in 2018.

The imposition of carbon pricing on Pennsylvania fossil generators would elevate wholesale power prices in parts of PJM. In a sensitivity case released earlier this year, IHS Markit estimated the degree to which RGGI allowance prices would boost on-peak energy prices at impacted PJM pricing hubs. Price elevation in Pennsylvania due to RGGI pricing could potentially be higher than elsewhere in PJM, given the level of coal capacity in the state. That elevation would be a material change for zero-carbon resources that have been struggling with persistently low wholesale spot power prices.

Figure 1: RGGI to grow with Pennsylvania?

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Patrick Luckow is an Associate Director, Power, Gas, Coal, and Renewables, IHS Markit

Posted 15 November 2019 

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.