CAMPAIGN 2014

Coal-reliant Pa. faces election showdown over EPA, natural gas and carbon trading

The nation's third-largest carbon dioxide-emitting state is in the middle of a fierce election fight that could determine whether it stays on its current path of challenging U.S. EPA climate rules, or instead slows fossil fuel development and enters a regional carbon trading program.

In coal-reliant Pennsylvania, Republican Gov. Tom Corbett -- who has overseen the state's natural gas boom and called the EPA proposed carbon rule on existing power plants a "cap-and-trade tax" -- is facing a formidable challenge from Democrat Tom Wolf, a businessman with a doctorate from the Massachusetts Institute of Technology. Wolf is pledging to expand the state's alternative energy portfolio standard and implement new measures to cut greenhouse gases.

The race is considered a tossup by independent political analysts like the Cook Political Report, although some polls give Wolf a double-digit lead.

Because the candidates have divergent views on energy, the race's outcome could eventually determine how much natural gas is drilled, how much coal is burned, how much efficiency is tapped and how many renewables come online in a state with some of the country's highest emissions, analysts say.

Only California and Texas release more total CO2, according to the Department of Energy. The election also could revamp the Regional Greenhouse Gas Initiative, a cap-and-trade program covering nine Northeastern states ranging from Maine to Maryland, as Wolf has pledged to bring Pennsylvania into the program.

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"This is a critical election. You have federal regulations being proposed by EPA without congressional input that will have a tremendous impact on the portfolio of the state," said John Pippy, CEO of the Pennsylvania Coal Alliance, which is backing Corbett.

The election's timing is key, he said, because the next governor will oversee the state's implementation plan to comply with EPA's draft carbon rule on existing power plants under Section 111(d) of the Clean Air Act.

Election with major 'ripple effects'

A potential Pennsylvania move into the Northeast's carbon trading system, known as RGGI, is being called a revolutionary development by some because of Pennsylvania's energy profile and size. Its 2012 emissions were higher than the nine other RGGI states combined, as roughly 40 percent of its power comes from coal and 29 percent from natural gas.

Pennsylvania also is a major nuclear player, ranking second in the nation as of 2013 in terms of nuclear generation, according to the U.S. Energy Information Administration. Four percent of the state's power comes from renewables.

With that energy profile, the entrance of a big coal state like Pennsylvania into RGGI could have a domino effect and influence other large states with a diverse fuel mix to consider the cap-and-trade option, some analysts say.

"You are talking about a massive energy state. The decisions it makes are going to have ripple effects," said Jackson Morris, an energy analyst at the Natural Resources Defense Council, which is not endorsing either Pennsylvania candidate. This could be especially true with states like Virginia and Ohio that are not in RGGI but, like Pennsylvania, are part of the PJM Interconnection, the regional transmission organization, he said. Morris said PJM states also could set up a parallel, RGGI-like program as an alternative.

Another environmental analyst made a similar point, saying, "States like Ohio -- if they see Pennsylvania go into RGGI -- may say, 'Why not, since we're part of the same grid?'"

A Pennsylvania move also could put political pressure on New Jersey Gov. Chris Christie (R) to reconsider his state's decision to leave RGGI, said Peter Shattuck, a director for market initiatives at Environment Northeast.

And for New York, which already participates in RGGI, bringing Pennsylvania into the fold could help solve a tricky issue.

New York and Pennsylvania share several hundred miles of border, and a significant amount of power is transferred between the states. As the need to hold carbon credits raises the marginal cost of generation in New York, utilities are encouraged to draw more power from relatively cheaper generating sources in Pennsylvania.

This process -- colloquially termed "leakage" -- undercuts the viability of the system by driving power out of regions covered by RGGI, said Robert Stavins, a professor of public policy and director of the Environmental Economics Program at Harvard University.

"You increase the likelihood of leakage as the costs of carbon credits rise," as is planned under RGGI, he said. "For RGGI to work as it's supposed to, you need power generation in Pennsylvania to be covered as well."

Pennsylvania's participation in RGGI would be a major development, but it wouldn't change the fundamentals of how the program operates, as its key regulatory documents already exist, Shattuck said.

To participate, a state like Pennsylvania would have to approve an existing model rule and "fill in a couple of key details," he said. Pennsylvania would have to be given a CO2 allowance budget, for instance. According to Shattuck, the regional carbon cap would become larger, but the fundamentals of how much utility emissions would have to decline over time -- 2.5 percent a year from 2015 to 2020 -- would not change.

Like any market, "the larger it is, the more effective it is," Shattuck said.

The leakage issue with New York also is not as relevant as it once was, one analyst said, as the EPA rule equalizes differences between states.

Incumbent calls RGGI a 'coal-killing' program

The issue of climate change and RGGI has been percolating in campaign press releases and public comments of both candidates, a dynamic heightened by billionaire environmentalist Tom Steyer's plan earlier this year to pour in money via a political action committee to emphasize climate change in the gubernatorial race.

Immediately after the announcement of the EPA proposed rule, Corbett joined some GOP governors in slamming the plan, saying in one letter that it "would unnecessarily expand federal authority over the states in energy policymaking and risk undermining our success."

The governor's energy adviser, Patrick Henderson, said in an interview that much of the concern is about jobs, electricity prices and the reliability of the grid under EPA's plan, especially considering the global nature of climate change. "Other countries aren't playing by the same rules," he said.

He said there was "little margin of error" this past winter during frigid temperatures in terms of avoiding blackouts, and unnecessary regulations on power plants only heighten the risk. It is premature to say whether Pennsylvania wants to join other states in suing EPA, he said, but it hasn't been eliminated as an option.

The governor is open to working with other states on complying with the EPA rule, but "we have not seen a compelling reason to RGGI," a program the governor's campaign terms a "coal-killing liberal" initiative.

The Wolf campaign did not respond to multiple requests for comment, but climate change is prominently featured in campaign materials. Wolf pledges within his first year of office to boost energy efficiency programs, strengthen a coming state climate plan and expand the state's Alternative Energy Portfolio Standard, which currently calls for 18 percent of electricity to come from alternative sources by 2020-21.

"I know we need to adopt stricter regulations and support innovative tools for reducing our emissions, especially as the natural gas sector continues to grow," Wolf wrote in a survey to the group PennFuture in May.

His website repeats his pledge to join RGGI, a stance reiterated in the PennFuture survey. "Tom will use a portion of the revenue generated from the sale of [carbon] permits to invest in renewable energy technology," the campaign website states.

Wolf also said last month that he will appoint leaders to environmental positions who "care about science and will use facts, not politics or ideology, to guide policy development," according to NPR's StateImpact, noting an apparent reference to comments by the governor's Department of Environmental Protection head in a public hearing last year that he did not see adverse impacts to humans because of current climate change.

"The biggest difference in this election in terms of climate change is that one candidate thinks it's a problem," said Josh McNeil, executive director of Conservation Voters of Pennsylvania, voicing a common criticism from environmentalists of the governor. Wolf also would be more likely to keep an environmental watch on the state's growing natural gas production, he said, noting that Corbett recently opened state parks and forests to natural gas development.

Shale gas issue complicates choice

The reviews from outside entities on whether RGGI participation is the best option for the state, however, are mixed. An analysis from law firm Reed Smith this year outlined the cases for and against, noting that RGGI participation for Pennsylvania could be more stringent than EPA's reduction targets.

That may not make sense for Pennsylvania, in that the state already is on the path for reductions via coal to gas switching and other factors. "Pennsylvania could meet the near-term 111 (d) goals without doing much further," according to the analysis.

On the pro side, participation in RGGI would give the state an extra two years to submit its implementation plan to EPA, as the carbon rule grants states additional time for multistate action. It also could make the EPA compliance process simpler and eliminate administrative complexities, some analysts say.

"RGGI is a proven model that already exists ... and so there is an appeal for states to take a look at a ready-made product as opposed to having to construct their own plan from the ground up," Morris said.

RGGI backers generally also say that the program has worked well in reducing emissions and providing a revenue stream for states via carbon auctions to fund clean energy projects.

However, it could take time for the program to resolve uncertainties with the EPA rule. That includes clarity on how to translate EPA's "rate-based" requirements for carbon reductions, expressed in reductions of pounds per megawatt-hour, to a "mass-based system" expressed in total million tons of CO2 in RGGI. The RGGI reduction plan also currently runs through 2020, not 2030 like EPA's rule.

It also is uncertain whether Pennsylvania's Legislature would have to be involved with the process in the case of a Wolf win. New York joined RGGI via administrative action, but other states have relied on their legislatures. In that case, Wolf -- if elected -- could run into trouble in that Pennsylvania's Legislature is expected to be Republican, said Christopher Borick, a political science professor at Muhlenberg College.

For a governor to act alone on RGGI, there would have to be an existing air pollution law that could provide a framework to join the multistate pact -- something that RGGI advocates think is an option, particularly with the new EPA proposal, but also could bring lawsuits.

In the meantime, Borick said the RGGI and climate issue -- as relevant as it is for the state's emissions -- is not likely to decide the election. The dominant energy issue is whether the state should have a severance tax on natural gas, with Wolf supporting a fee and Corbett opposing it, he said.

Pennsylvania's annual gross natural gas production jumped 72 percent in one year, according to the Energy Information Administration.

Wolf has suggested tying funds from any tax to boosting the education system, which has faced unpopular cuts, Borick said. The link between education and natural gas has "put Tom Corbett in a really difficult defensive spot," he said.

The dominance of natural gas in state politics also could play into how Wolf would govern on climate issues if he wins, in that he would have to spend a lot of political capital at the start with the Legislature on the severance tax, Borick said. Polling on cap and trade is mixed in the state, further indicating it may not end up as a top priority, he said.

"It would be a bit of an uphill climb to make the case on RGGI," Borick added. "It's an issue where I think Wolf would have to engage in substantial outreach to build support."

Reporter Nathanael Massey contributed.

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