This story was updated Nov. 16 with the state regulators' vote.
Virginia has taken a first step toward joining the East Coast's regional carbon-trading market, a move that would drive down the state's greenhouse gas emissions and help reshape the power sector in the traditional coal state.
State regulators on Thursday unanimously approved a draft proposed rule that would cap emissions from Virginia's electricity sector beginning in 2020 and reduce them by 30 percent over a decade. Under the proposal, Virginia would join nine other states in the Regional Greenhouse Gas Initiative (RGGI), the nation's longest-running mandatory carbon market.
"It's a legitimate and meaningful reduction in carbon pollution," said Walton Shepherd, a staff attorney at the Natural Resources Defense Council and a member of an advisory group that helped shape the regulation.
As the Trump administration moves to roll back federal climate policies, some states have reacted by enacting their own.
Virginia Gov. Terry McAuliffe was defiant when he issued an executive order in May directing regulators to create a market-based trading program to reduce carbon dioxide emissions. "The threat of climate change is real, and we have a shared responsibility to confront it," the Democratic governor said then. "As the federal government abdicates its role on this important issue, it is critical for states to fill the void."
The draft proposed rule was released on election night last week, after Lt. Gov. Ralph Northam defeated Republican Ed Gillespie to succeed McAuliffe. Gillespie had promised to repeal the order. Northam has said he will build on McAuliffe's efforts. The plan would cut the state's emissions similar to what's required under the Clean Power Plan, President Barack Obama's signature effort to reduce greenhouse gas emissions.
Virginia's Republican-led legislature has defeated attempts to join the regional carbon market in the past. The new rule was crafted in a way to avoid needing legislative approval. Its supporters, however, say cutting emissions is no longer controversial in the state.
"We have not gotten a lot of pushback," said Michael Dowd, director of the state Department of Environmental Quality's air division, which wrote the regulation.
Pam Faggert, chief environmental officer for Dominion Energy, the state's largest utility, said in a statement that, "while we haven't yet had a chance to fully study the state's draft proposal, we expect to fully meet whatever regulatory requirements that result." Another utility, Appalachian Power Company, had warned before the rule was announced that joining RGGI could force the state to cede control over its "emissions trajectory and economic well-being."
Virginia's electric utilities have already been reducing their emissions. Coal's share of the state's electricity generation fell from 45 percent in 2005 to 20 percent in 2015, largely replaced by natural gas. Emissions did rise in 2016, however, to about 37.5 million tons, after holding steady for several years.
How to Cut Emissions 3 Percent a Year
The new rule would cap carbon dioxide emissions at either 33 million tons or 34 million tons in 2020. After that, the state's utilities would collectively have to reduce emissions 3 percent per year through 2030, matching what RGGI states agreed to in August.
Like in other RGGI states, Virginia utilities would be allowed to sell emissions allowances at auctions if they're able to cut their emissions cheaply, or, if not, they could buy allowances from others.
Virginia regulators have structured the allowances slightly differently, however, to avoid needing legislative approval. Rather than having utilities purchase their credits, Virginia's utilities would be given a set number of allowances for free, based on their emissions. They would be required to sell those credits in an auction before buying back the number of allowances needed to cover their emissions.
If a utility cuts its emissions enough that it can sell more credits than it buys, the revenue goes to the utility, though state regulators will be able to exert some control over how the company uses the money. The results, Shepherd said, may ultimately be similar to what happens in other RGGI states, where the revenue generated by the auctions is invested by the states in improvements in efficiency and expanding renewable energy.
"It's basically the commission saying, 'Hey, these revenues can't just be a windfall to you, you should spend those on energy efficiency programs'," Shepherd said.
Biggest Emitter in the Market
If Virginia does join RGGI, it would be the biggest emitter in the carbon market. The addition would boost RGGI's 2020 cap—currently set at about 78 million tons—by more than 40 percent.
RGGI has been widely viewed as a success at cutting emissions without driving costs too high. An analysis by the Acadia Center, a climate advocacy and research group, found that emissions from power plants in RGGI states fell to 79 million tons in 2016, a drop of nearly 5 percent from the previous year. Since 2008, before RGGI began, emissions have fallen 40 percent.
Adding Virginia, experts say, could lower costs by expanding the market.
New Jersey is also expected to rejoin RGGI following last week's election. Gov. Chris Christie, a Republican, withdrew the state from the regional market in 2011. Gov.-elect Phil Murphy, a Democrat, has said he would immediately rejoin.
The Virginia plan still faces a long road to adoption. If the Air Pollution Control Board approves it on Thursday, the proposed rule would enter a public comment period of at least 60 days before regulators could draft a final regulation. Dowd said he hoped a final rule would be ready for the board to approve next summer.