In concluding Pennsylvania’s regulations authorizing participation in the Regional Greenhouse Gas Initiative (RGGI) proposed by former PA Governor Tom Wolf’s administration were invalid and unenforceable, the Pennsylvania Commonwealth Court determined the regulations were unconstitutional as they “infringe[d] upon the General Assembly’s exclusive authority to levy (or not levy) taxes.”
“... to pass constitutional muster, the Commonwealth’s participation in RGGI may only be achieved through legislation duly enacted by the Pennsylvania General Assembly, and not merely through Rulemaking promulgated by DEP and EQB.”
A distinction with a difference
Under Wolf’s direction, the PA Department of Environmental Protection (DEP) first proposed that the Commonwealth join RGGI in October 2019, a “cooperative, market-based effort” among several states to “cap and reduce carbon dioxide emissions from the power sector.”
Joining RGGI requires electric generation plants located in participating states to purchase one allowance for each ton of carbon dioxide they emit. Allowances are auctioned off by RGGI on a quarterly basis and a declining budget is established in the state to limit the total amount of carbon dioxide that can be emitted. As a member of RGGI, plants are subject to additional permitting, monitoring, reporting, and record-keeping requirements in line with RGGI standards.
distinction with a difference
The energy industry, manufacturers, consumers, and PA state trade unions argued against joining RGGI since it was first proposed. Now, the Commonwealth Court determined that the regulations authorizing Pennsylvania to join the RGGI violated Pennsylvania’s Constitution because they were consistent with a tax and not a fee, a distinction with a difference.
The Court emphasized that the allowance auction proceeds constituted a tax, refuting the position of former DEP Secretary Patrick McDonnell. The auction proceeds would be deposited into the Clean Air Fund, were generated as a direct result of joining the RGGI, and would generate substantial monetary benefits for the DEP – monetary benefits that would have been “grossly disproportionate” to the cost of participating in and overseeing the RGGI program.
In reaching its determination, the Court cited the long-standing Pennsylvania Supreme Court decision, “[n]o principle is more firmly established in the law of Pennsylvania than the principle that a revenue tax cannot be constitutionally imposed upon a business under the guise of a police regulation, and that if the amount of a “license fee” is grossly disproportionate to the sum required to pay the cost of the due regulation of the business the “license fee” act will be struck down. The courts interfere with the discretion of the legislature in such matters only “where the regulations adopted are arbitrary, oppressive, or unreasonable.” The regulations in question when tested by this standard require judicial interference with the legislative act creating them.” Flynn v. Horst, 51 A.2d 54, 60 (Pa. 1947) (citation omitted).
Based on its analysis, the Court found that the “moneys generated and received by the Commonwealth’s participation in the auctions were “grossly disproportionate” to the costs of overseeing participation in the program or DEP’s and EQB’s annual regulatory needs, and relate[d] to activities beyond their regulatory authority” and were thus “invalid and unenforceable,” making the regulations void.
In closing, the Court stated, “… to pass constitutional muster, the Commonwealth’s participation in RGGI may only be achieved through legislation duly enacted by the Pennsylvania General Assembly, and not merely through the [regulations] promulgated by DEP and EQB.”