After Santa Comes Carbon Tax Sugar Daddy

by Steve Haner

The Virginia Secretary of Natural Resources will be the sugar daddy for the carbon tax dollars raised from electricity customers, according to pending legislation to fully enroll Virginia in the Regional Greenhouse Gas Initiative (RGGI) next year.

House Bill 20, sponsored by Norfolk Democrat Joe Lindsey, is similar (with some changes) to 2019 legislation which died on a partisan vote when Republicans controlled the General Assembly. Now that power has shifted the bill’s chances of passage are excellent. It has several unusual provisions and may hint at how the related Transportation and Climate Initiative will be implemented in Virginia.

First, as mentioned, the bill directs that the money raised from the carbon tax paid on all electric plant carbon-dioxide emissions stays away from the general appropriations process. The Department of Environmental Quality will accumulate and disperse the revenues from a segregated fund, under the supervision of the secretary.  From the bill, which notes the legal impediment:

To the extent permitted by Article X, Section 7 of the Constitution of Virginia, the Department shall (i) hold the proceeds recovered from the allowance auction in an interest-bearing account with all interest directed to the account to carry out the purposes of this act and (ii) use the proceeds without further appropriation for the following purposes only in a proportion to be determined by the Department with the approval of the Secretary.

Perhaps to build political support, the list of worthy causes to receive the funds has been expanded slightly from the 2019 proposal:

  • Assisting governments, individuals and businesses affected by recurrent flooding, sea-level rise, and flooding from severe weather events (35% — this was 77% in last year’s bill);
  • Supporting energy efficiency programs (30%);
  • Supporting renewable energy programs (17%);
  • Providing economic development, education, and workforce training programs for families and businesses in Southwest Virginia for the purpose of revitalizing communities negatively affected by the decline of fossil fuel production (10%);
  • The Virginia Agricultural Best Management Practices Cost-Share Program (5%)

How much money is involved remains unknown but based on the assumed starting cap of 28 million tons of CO2 and the recent price of CO2 allowances in the RGGI auctions, a good guess is $150 million annually. In late 2018, the estimate was higher. The utilities involved, mainly but not exclusively Dominion Energy Virginia, are unlikely to pass on those costs to their stockholders if they can help it.

Second, to win political support from Dominion, the bill once again strips authority from the State Corporation Commission by declaring that solar and wind generation projects that help utilities meet RGGI goals are in the public interest, and that Dominion and Appalachian Power must get at least half-way there with utility-owned projects. The utility-owned projects are the ones that rip off consumers to the greatest extent, imposing far greater costs than contracts with third party generators or than energy delivered wholesale from the regional trading process.

The bill also accounts for covered sources of CO2 emissions which are providing electricity under long-term contracts which prohibit the recovery of carbon tax costs. Those entities will get free allowances. Any doubt that the real intention is to make consumers pay in the other cases must be discounted once you read that. Giving those plants allowances for free will lower supply and drive up the price of allowances that remain in the marketplace.

Can customers who have found competitive suppliers, who are not buying electricity from Dominion or APCo in their territories, escape this cost? No. “They shall pay a non-bypassable surcharge equal to the price established under the allowance auction to the incumbent electric utility.” This is about the money, not about saving the planet.

Third, and this is the most curious, this is what is called a Section 1 bill, which means it will not be made part of the Code of Virginia. The General Assembly passes quite a few of these each year, but they are usually of limited impact or limited duration. Good examples are the budget, which expires every two years, or claims bills for one-time legal settlements, or the bills creating new licence plate designs.

The 2019 bill directly amended an existing state law. There is some legal or process legerdemain at work here, which some reader may be able to explain better than I can. This is not a matter of limited or local impact. To further smooth the process, the regulations needed to enforce all this will be exempt from the Administration Process Act’s public input process.  

The RGGI system is an interstate compact, but there is no mention of that legal construct in this legislation, which simply authorizes the executive branch to implement the adopted carbon caps and reductions and start collecting and spending the money. The state’s legal position is that the money paid by the utilities for their carbon allowances are fees, not taxes, and that is how it will stand unless somebody goes to court.

In general, when a citizen pays a fee that citizen receives a service or a license (think trash collection or a driving license or college tuition). When a citizen pays more for electricity so government can spend money to protect eroding beaches, train a coal miner to work at 7 Eleven, or buy an LED light bulb for somebody else, that might look more like a tax to some observers.

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20 responses to “After Santa Comes Carbon Tax Sugar Daddy

  1. 150 million may sound like a lot but it is somewhere around $25 per taxpayer.

    Which, before you say it, is $25 less than they would have had!

    I like the fact that it’s earmarked but I worry when the payout is “shotgun” that the money is going to find some questionable uses and a whole lot of bureaucracy to administer it….

    What about the RGGI for vehicle fuels ? Is that addressed?

  2. Elections have consequences. The social engineers are now firmly in control.

    The list of worthy causes is particularly interesting. By dedicating some of the RGGI revenues to SW Virginia and agriculture, the authors evidently hope to peel away some Trump-country legislators who might otherwise be inclined to oppose the bill. Also, money for energy efficiency and renewable energy engages the special interests who would benefit from that spending. To top it off, the bill takes Dominion out of the lobbying equation by insulating the company from adverse impacts.

    You have to admire the legislative handicraft that went into this bill. Given the current array of political forces — and with conservatives all riled up over gun control and nothing else — I don’t see how it can be defeated.

  3. Geeze – no more consequences than before .. If you don’t like an RGGI tax – how do you feel about the dozens of tax “credits” that reward various behaviors:

    and here is Virginia tax credits: https://www.tax.virginia.gov/tax-credits

  4. Recently Maryland Gov Hogan announced his proposed energy plan for Maryland. Hogan seems to be worried that RGGI will cause outflow of money from Maryland. So he is proposing credits for internal Maryland nat gas and nuke plants. Needless to say, enviro groups are shocked and repulsed.

  5. We DO credits. Credits are tax breaks for SOME people but not all.
    If we do RGGI AND we give tax credits to get that tax back – then how is that bad? It’s NOT like the Govt doesn’t already incentivize certain behaviors by rewarding them with lower taxes, no?

    I’d guarantee you that if Virginia gave substantial tax credits for residential solar – funded from RGGI – it would be a success.

    Ditto for cars. If Virginia gave a credit for cars that got 30-40 mpg – it would be wildly successful.

    Don’t tell me that doing this to reduce greenhouse gases is not right.

    Not when we give substantial tax breaks for people who get mortgages on houses or buy health insurance through their employer or buy subsidized flood insurance.

    This is not at all about the “wrongness” or “rightness” of taxes and tax policy – it’s about what things people think are justified … and the same folks who are okay with tax-free health insurance and writing off mortgages are not OK with incentivizing reducing greenhouse gases.

    simple truth.

  6. It’s damnable that once again the authors of legislation purporting to be in the public interest insist on removing the entire subject of the bill from the supervision of the State Corporation Commission, the agency established to ensure that public utilities in Virginia operate, and charge for, their services in the public interest. Your second point is, to use a current term-of-art, “sad.” Why, indeed, do ‘they’ need the political support of Dominion?

  7. I believe RGGI would impact 23 of the states 28 power stations. This chart seems to illustrate that the auctioning of carbon emissions allowances is not currently working due to low fossil fuel prices.

    https://www.utilitydive.com/news/low-carbon-prices-hang-over-rggi-as-june-auction-approaches/443956/

  8. Joining RGGI seems like a lot of extra hocus pocus with regulation sprinkled on top. How in the world would Virginia keep track of such complicated regulation and enforcement? Would the state deploy the DMV experts in efficiency to oversee this? Companies that exceed their limits will simply buy tax credits from the companies that have a surplus. Why reward a polluting Virginia business with carbon indulgences in exchange for purchasing green credits from a Vermont forest? Let 20 years go by and see this RGGI scam collapse. Somebody is getting fabulously rich from RGGI.

  9. I just point out once again – that we know from experience that Cap and Trade works for pollution. It did for acid rain. Did that increase electricity prices? If it actually did – was the increase in prices worth the decrease in acid-polluted waterways?

    Similarly – CFCs were implicated is causing the Ozone Hole – and ENOUGH nations agreed to reductions in CFC that now the Ozone Hole has stabilized – it’s still big but it’s growth has been limited.

    see: Ozone Hole is Big, But Tempered by CFC Reductions

    of course, I realize that skeptics will claim that the data is being “manipulated” and that what this shows is that CFCs have no effect on the ozone hole.

    and so it goes……….

    If you believe that we have Global Warming, you will support RGGI – if not – then pretty much no – correct?

    • A warming trend is supported by the evidence. What is not proven is any causal relationship with CO2, and thus any benefit to substantially reducing CO2. But if you buy the climate alarmist theory, RGGI is an insultingly weak response, with zero environmental benefit to be expected. Likewise its cousin the Transportation and Climate Initiative – the 17 cent tax is associated with a 25 percent reduction in fossil fuel use, and the organizers have estimated fuel use will drop 19 percent WITHOUT TCI. All that tax and bureaucracy for that little marginal benefit? If you worship at that altar, you must go for the 100 percent reduction….and just wreck the economy.

    • “If you believe that we have Global Warming, you will support RGGI – if not – then pretty much no – correct?” No, not correct — though entirely too many ill-informed folks jump to that conclusion.

      The very problem Steve is raising here is why RGGI as it’s being proposed here in Virginia does NOT deserve knee-jerk support. This has turned a decent concept on its head, taking advantage of the naivete of new Democrat legislators to turn this version of RGGI into a Christmas-tree of new programs at rate-payer expense — in effect, it’s simply a new tax on utility customers, the proceeds of which are to be squandered on all sorts of unrelated boondoggles. Where is the outcry from legislators demanding that, if we’re going to join RGGI, the proceeds from RGGI payments go back to the energy-efficient utility customers, or to increase the energy efficiency of those customers who need the help? We are not inventing the wheel here; there are lots of other state RGGI payment distribution models to look at. But what is proposed in this bill for Virginia would make us a laughingstock.

  10. If one excludes scientists on the take (thosepaid by Uncle Sam to find human-related causes and only human-related causes for melting ice), I strongly suspect the remaining scientists would conclude there are multiple causes for the Earth’s warming. And I bet there would be a diversity of views as to the relative percentages of causation.

    Then if one assumes that the environment is normally better served when it’s protected from human intervention, e.g., dumping chemicals in bodies of water, emitting noxious gases into the air or draining pockets of underground water, it makes sense to minimize emissions of greenhouse gases. However, if one applies the same principle to natural warming (such as part of a cycle of recovering from an ice age (or more realistically, a mini-ice age)), aren’t human attempts to interfere with that process, equally inconsistent with a good environment?

    In other words, if a combination of natural trends and excessive carbon emissions produce a +5 but the natural trends would produce a +2, logic says the effort to reduce greenhouse gases should be limited to what would produce a -3. Efforts to produce a -5 are overreach.

  11. Steve, you had exactly right when you said, “This is about the money, not about saving the planet.”

    You have to credit the skill of the utilities in crafting legislation. They will pass the tax on to ratepayers. In return they will get GA authorization to put utility solar and wind in the ratebase which will add billions of dollars to customer energy costs compared sourcing the energy through independent providers. Thus considerably boosting profits and shareholder returns. All the while, they will prohibit the SCC from determining whether any of this makes any sense.

    Simply opening up our energy systems to third-party providers and energy service companies (as other states have done) would reduce carbon emissions and the costs to ratepayers. This legislation just continues the subsidies to our investor-owned utilities.

    • TomH, you have it exactly right! The State of Virginia will reap the rewards, here:
      * Turn this over to independent, competitive generation providers and you will get what will actually sell in the wholesale market.
      * Turn this over to an independent utility commission and you will get what is forecast to be in the long-term interests of utility ratepayers.
      * Turn this over to a bunch of legislators paid handsome stipends by the utility’s lobbyists and you will get whatever the politicians think they can get away with that pleases the utility — especially when they have protected themselves from embarrassment by forbidding up-front review, either by independent financiers or by the commission’s analysis.
      For shame!

  12. Not that it will make a lot of difference, I think the revenues still must be appropriated for the agency to spend them. The proposed legislation sets out how the revenue is to de distributed, but that formula can be overridden in the Appropriation Act.

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