As states deal with increasing energy costs, lawmakers face the challenge of balancing affordable power with responsible environmental practices. While it might seem daunting, Pennsylvania is showcasing that it’s possible. Over the last decade, the state has illustrated that aggressive environmental regulations don’t have to come at the cost of energy development.
This conclusion emerged after a lengthy budget deadlock in the Pennsylvania Legislature. Governor Josh Shapiro and the General Assembly reached a major compromise, officially removing Pennsylvania from the Regional Greenhouse Gas Initiative (RGGI), thereby resolving a prolonged stalemate.
RGGI, often referred to as “Reggie,” is a multi-state cap-and-trade system where participating states set limits on carbon emissions and auction allowances to energy producers.
The state has had a tumultuous relationship with RGGI. Back in 2019, Governor Tom Wolf entered Pennsylvania into the initiative without legislative approval. However, a ruling from the Commonwealth Court declared the carbon tax unconstitutional, asserting that only the Pennsylvania Legislature can impose such a tax. Shapiro, who voiced concerns about RGGI during his campaign, sued to uphold the compact, but the effort to challenge it in court has been abandoned thanks to the Pennsylvania Republican Party, which advocated for the withdrawal during budget talks.
Like many “green” energy initiatives, RGGI comes with substantial costs. An economic model suggested that RGGI would decrease electricity prices in Pennsylvania by around 30 percent, though this analysis is now seen as outdated, as RGGI allowances have risen, likely leading to greater expenses.
The impacts of RGGI extend beyond Pennsylvania. Some analyses indicate that RGGI may be responsible for added annual costs of about $1.8 billion across the 13 states and Washington D.C. included in the regional grid managed by PJM Interconnect.
Given these costs, it’s noteworthy that Pennsylvania contributes significantly to PJM’s power output and ranks high in electricity exports. The state simply can’t afford to weaken its energy industry.
In terms of RGGI’s effectiveness, Pennsylvania offers a compelling case study. The Pennsylvania Independent Fiscal Office (IFO), an independent nonpartisan organization that assesses state policy, recently revealed that from 2019 to 2024, carbon emissions in the state fell by 9 percent while electricity generation increased by 5 percent—all without RGGI’s involvement.
So, how did Pennsylvania manage that? The key lies in natural gas.
The Marcellus Shale boom has positioned Pennsylvania as one of the top natural gas producers in the country, just behind Texas. Natural gas burns cleaner than coal, which has significantly reduced emissions in the state.
This trend isn’t only unique to Pennsylvania; natural gas has heavily contributed to emissions declines nationwide. Between 2005 and 2019, the U.S. eliminated roughly 819 million tons of carbon dioxide, with two-thirds of that reduction attributed to natural gas.
In contrast, RGGI’s statistics don’t quite measure up. Instead of achieving emissions reductions, RGGI states have shifted their emissions problems elsewhere. A report from the Congressional Research Service indicated that electricity generation in states outside RGGI increased by 8% shortly after the program began.
As power generation declined in RGGI states, they have increasingly relied on states that do not participate in the initiative to meet their energy needs, doubling their electricity imports between 2007 and 2015, according to research from the Cato Institute.
Overall, RGGI has proven to be, at best, a solution looking for a problem. Cap-and-trade systems tend to turn affordable energy production into a challenge, threatening grid reliability while stifling economic competition.
For Pennsylvania, exiting RGGI has arrived at an opportune moment. With an abundance of accessible and reasonably priced energy, the state is ideally situated to support emerging technologies and industries, especially artificial intelligence (AI).
Given the substantial power requirements for AI’s substantial data processing needs, it makes economic sense for Pennsylvania to liberate its energy sector from burdensome regulations. By prioritizing market-based energy solutions over cap-and-trade approaches, the state is embracing future industries while remaining competitive in energy innovation.
Pennsylvania is setting an example here. Exiting RGGI could be a smart strategic decision towards a future that’s rich in energy and focused on innovation. The state demonstrates that it’s feasible to cut emissions, boost power generation, export energy, and foster advanced industries simultaneously without stringent regulatory measures.
States contemplating RGGI membership, particularly Virginia, might benefit from Pennsylvania’s example.
