Will power plants have to pay for CO2 pollution? It depends on how the courts define ‘pay’

A landmark Pennsylvania rule to make power plants begin paying for their carbon dioxide pollution could survive or collapse based on whether those payments are considered a fee or a tax.

That question was at the crux of oral arguments Wednesday in the Commonwealth Court, where coal- and gas-fired power plants and Republican legislators have challenged the Democratic Wolf administration’s central effort to combat climate change.

The contested rule requires fossil fuel power plants to pay for each ton of carbon dioxide they release and sets a gradually declining cap on those emissions.

It also links Pennsylvania with 11 other states in the Regional Greenhouse Gas Initiative, or RGGI, that share a market for the pollution allowances that the plants must buy.

Money that Pennsylvania raises from the allowance sales will be dedicated to state programs for clean air and clean energy.

The tax-versus-fee issue has held up the program since July, when Commonwealth Court Judge Michael Wojcik found that it presented “a substantial legal question” and paused the rule only a week after it took effect, before coal and gas plants ever started paying for their emissions.

During the argument session on Wednesday, judges pressed attorneys on the distinction.

The question matters because only the Legislature can enact a tax. But Gov. Tom Wolf’s administration, frustrated by what it saw as inaction by the Legislature to address the climate crisis, adopted the program as a regulation, crafted by the Department of Environmental Protection under the authority of the state’s long-standing air pollution control law.

The administration contends the carbon pollution payments are regulatory fees, which the law allows.

Drew Crompton, an attorney for the Republican legislators, called the carbon payments “an unconstitutional tax” and said the projected $750 million in annual proceeds from the program far exceeds the cost of running it. (Crompton served as a Commonwealth Court judge from 2020 until 2022.)

“$750 million would be one of the biggest sources of revenue in the commonwealth,” he said, noting that it would bring in more money than state taxes on cigarettes and insurance premiums.

Attorney Matthew White, representing DEP, countered that the law allows fees to be used to control air pollution — not just to supervise compliance with the regulation. The investment of the funds is a crucial element of the regulation to drive down pollution, he said.

“The proceeds to be generated are going to be spent for a big problem. The big problem is air pollution and carbon dioxide emissions in this commonwealth,” he said.

Pennsylvania’s power sector releases more carbon dioxide pollution than many entire countries, including Austria and Israel, DEP has said.

The court considered other issues on Wednesday, including whether the RGGI agreement counts as an interstate compact, whether DEP surpassed its authority under the air pollution law and whether DEP’s public meetings complied with the law.

Those questions are less likely to be important factors in the cases because Wojcik sided with DEP on all three issues in his July order.

Because of the court injunction, Pennsylvania missed participating in the allowance auction in September — which would have raised about $200 million — and will miss another one in early December.

There is no timeline for Commonwealth Court to issue a decision in the cases. When it does, it is likely to be appealed to the Pennsylvania Supreme Court.

If the carbon-cutting program survives the court challenges, its fate may be determined by Gov.-elect Josh Shapiro, a Democrat, who has been skeptical of RGGI and has not committed to keeping Pennsylvania in it.

Throughout his campaign, he promoted other strategies for combating climate change.

During a news conference on Wednesday, Shapiro said that he would “convene a working group” about RGGI on the first day of his administration with “folks from all different sides of this debate” to find “the kind of consensus and common ground that doesn’t raise energy prices or put anyone out of work, but that really commits to addressing climate change.”

Still, if the courts uphold the regulation, it would take a new law or rule to rescind it, which would be a lengthy process, said Jessica O’Neill, an attorney for the environmental group PennFuture. Regulations often take two years to develop.

“You can’t just snap your fingers and undo that,” she said.