Virginia Begins Development of Cap-and-Trade Program for Electric Power Sector

On May 16, 2017, Virginia’s Governor Terry McAuliffe signed Executive Directive 11, which directs Virginia’s Department of Environmental Quality (DEQ) to develop regulations to reduce greenhouse gas (GHG) emissions from the power sector. Notably, the Directive requires DEQ to develop a program that is “trading-ready,” with market-based mechanisms capable of linking with other jurisdictions. 

The Directive builds on Executive Order 57, which Governor McAuliff signed in June 2016, and which directed Virginia’s Secretary of Natural Resources to convene a working group and recommend mechanisms for reducing GHG emissions in Virginia. The working group held six meetings during 2016 and early 2017 and issued its final report on May 12, 2017. The report evaluates various climate change-related risks and mitigation options, and states that “it is important and necessary that Virginia work through a regional model, like the established and successful [Regional Greenhouse Gas Initiative (RGGI)], in order to both achieve lower compliance costs and address the interstate nature of the electric grid.”

While no specific reduction target was set by the Directive, it instructs the DEQ to design a program containing “a corresponding level of stringency to limits on carbon dioxide emissions imposed in other states with such limits.” By way of comparison, California’s cap-and-trade program has a goal of reducing economy-wide GHG emissions 40% below 1990 levels by 2030, while Massachusetts’ Global Warming Solutions Act targets reductions corresponding to 25% below 1990 levels by 2020 and 80% below 1990 levels by 2050. Similarly, RGGI, a cap-and-trade program limited to the electric power sector, reduces its GHG emissions cap by 2.5% annually. 

The Virginia DEQ must propose its new GHG regulations by December 31, 2017, with a public comment and participation period to follow. Virginia’s gubernatorial election is taking place on November 7, 2017, and Governor McAuliffe is not eligible for reelection, which may influence both the pace and nature of the regulatory process. But if new regulations are developed and adopted—and are not blocked or rescinded through litigation or by a subsequent administration—Virginia could very well be the next state to adopt a cap-and-trade program to reduce GHG emissions.