After years of hesitancy, the Wolf Administration is testing support for joining Pennsylvania into the Northeast’s regional cap-and-trade program for carbon emissions, and the benefits could possibly extend beyond the fight to stem climate change.

Sources familiar with this year’s budget discussions say administration officials are also promoting how such a move could create an alternative funding source for the governor’s $4.5 billion “Restore PA” infrastructure program.

That’s because the proposal to enter into the 10-state Regional Greenhouse Gas Initiative is expected to net the state hundreds of millions per year in proceeds from carbon fees; some of that money could be used to cover the annual debt service anticipated from the bond-funded Restore PA.

The alternative is getting attention because, as has been the case in prior years, the Republican-controlled legislature is staunchly opposed to Wolf’s first-choice funding mechanism, a severance tax on natural gas extracted from the state’s Marcellus Shale reservoir.

“The best word for me to use is there’s been back-channeling on that,” Senate President Pro Tempore Joe Scarnati, R-Jefferson County, said Tuesday, noting that as of that point he had not fielded a direct pitch on RGGI from the governor’s office, but he was aware of the idea.

Scarnati added he’s open to conversation on the topic, but doesn’t see a path to a global agreement on RGGI or Restore PA before the legislature’s summer recess at the end of the month.

“I think that’s difficult. I think that’s a difficult hurdle in two weeks to come up to speed on something that is as comprehensive as RGGI, and how that impacts job, how it impacts various industry sectors," Scarnati said. “But we’re not closing the door to a conversation.”

Wolf administration officials - who still hold publicly to their preference for a severance tax on natural gas pulled from the Marcellus Shale reservoir - declined comment for this story.

But there is clearly draft language floating around the state Capitol as officials test the water on the greenhouse gas initiative, and Restore PA itself continues to enjoy support from a broad swath of constituencies.

And those drafts suggest the governor may be willing to take less than global agreement at this moment.

One version shared with PennLive on Wednesday would give express legislative authorization to the administration to begin negotiations on joining RGGI, though the administration would have to come back to the General Assembly for any final approval.

Wolf officials are apparently seeking inclusion of that language in one of the code bills that runs every year as part of the broader, state budget package, which all sides are hopeful will be wrapped up by the end of next week.

Some level of legislative buy-in seems to be necessary before the state could fully participate in the regional cap-and-trade program.

Another version of the language the Wolf Administration has floated seems to recognize as much, stating that “no payment or transfer” of funds deposited from carbon allowance sales could be made without direct appropriation by the legislature.

What is RGGI?

The initiative is a regional program in the Northeast and Mid-Atlantic regions that requires electric power plants fueled by coal, oil or natural gas in member states to buy a credit for every ton of carbon dioxide they emit. Carbon dioxide is a leading contributor to global warming.

The added cost gives those generators an incentive to lower their emissions, while making non-emitting plants — like nuclear plants, wind turbines and solar installations — more cost competitive in power markets, Jackson Morris, a climate and clean energy specialist for the New York-based Natural Resources Defense Council, told the Associated Press this week.

Credits sold at RGGI’s most recent auction sold for $5.62.

With power plant CO2 emissions in Pennsylvania recorded at 82.1 million tons in 2016, even at the average price for all the credit auctions last year it appears that the sales would have netted the state more than $360 million.

Ben Grumbles, the chair of the multi-state initiative’s board of directors and the current Secretary of Maryland’s Department of the Environment, said each state has the prerogative to use its proceeds as it sees fit.

Most states in the program now, Grumbles said, use it to off-set higher electricity costs to consumers, or to invest in energy efficiency programs that have the effect of reducing overall electric demand.

RGGI’s board has set a decline in the number of permits over time, using the principle of supply and demand to gradually raise the cost of carbon dioxide emissions and prod utilities to seek out cleaner sources of electricity.

At present, the number of credits is programmed to drop by 3% a year through 2030.

RGGI’s current participants are Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. Pennsylvania, with its abundant coal and natural gas reserves, is by far the largest carbon polluter of that group.

The cost of the carbon allowances is a big price tag that could ultimately be passed on to end-use consumers.

But Jose Abito, a professor in the Department of Business Economics and Public Policy at Penn’s Wharton School, did an analysis of Pennsylvania entering RGGI this spring that concluded electricity prices could actually decline as long as the carbon credits cost $25 or less.

In that case, Abito told PennLive by email Wednesday, “electricity prices may actually decrease if PA’s entry ‘turbocharges’ retirement of old and inefficient plants and investment In new, more efficient plants."

In addition, the added cost on fossil fuels could help the state’s nuclear power stations find a market for their zero-emission power without the need for a direct ratepayer subsidy as some state lawmakers had proposed earlier this year.

One of Pennsylvania’s nuclear operators, FirstEnergy Solutions, issued a statement Wednesday commending Wolf for "continuing the conversation about carbon free energy generation ... (and said it) looks forward to remaining part of the discussion and greenhouse gas reduction solution.”

The case against RGGI.

Past administrations have stayed out primarily because of the significance of Pennsylvania’s coal industry in parts of the state.

That industry has already been in decline, as market forces push away from coal as a power source. One of the state’s remaining seven coal-fired generating stations is scheduled to close in 2021, and a second is scheduled to convert to natural gas within the decade.

Because of those changes, opponents argue, Pennsylvania has already posted dramatic reductions in its carbon emissions without any carbon-pricing mechanism. That’s come in large part from the retirement of coal-fired plants and their replacement with cleaner-burning natural gas facilities.

Coal supporters argue that by joining RGGI now, the state’s leaders would unnecessarily accelerate that decline, causing massive economic problems in rural parts of southwestern Pennsylvania, the last big center of the state’s 18,000-job mining industry.

They also note that, as measured in 2017, average household electric rates in the three states that are in both RGGI and the same PJM wholesale energy market that Pennsylvania belongs to are all higher than current average electric rates here.

What’s next.

Sources familiar with the budget talks said RGGI remains a discussion point, but nothing has been agreed to yet.

And at this point, they said, that discussion appears to be limited to getting some preliminary buy-in to exploration of the concept from legislative leaders, with final approval to follow.

Lobbyists for the state’s gas interests, meanwhile, are advocating a different approach.

Given the stakes involved, and the desire to protect Pennsylvania’s leadership role in energy production, one lobbyist who asked not to be identified because he’s not authorized to speak publicly for his clients said they’d rather the issue be completely negotiated out with the legislature, rather than what feels like a “treaty ratification” process envisioned by the governor’s staff.

“It would to make more sense to require the Governor to draft a legislative proposal, have it referred to and considered by a standing committee, which would allow for a proper public process to evaluate its merits and stakeholder impacts,” the lobbyist said.

“There is no question that a $300 million carbon tax will impact electric rates and lead to plant closures, and thousands of lost jobs, which will trigger additional rate hikes.”

Whatever, the approach, Maryland’s Grumbles said he and his colleagues are excited at the prospect of Pennsylvania joining their 10-year-old coalition, which has taken on even greater significance in the fight against climate change as President Donald Trump has rolled back Obama-era greenhouse gas rules.

“We’re watching closely, and we stand ready to help the Commonwealth [of Pennsylvania]," said Grumbles. “The broader and bigger the scope of RGGI, the more helpful it can be in reducing greenhouse gas emissions and benefitting the entire country.”