Regulating Imports into RGGI: Toward a Legal, Workable Solution

Abstract

This white paper evaluates the legal workability and constitutionality of what is frequently considered the most feasible mechanism for RGGI to use in regulating imports: an obligation on RGGI “load serving entities” (LSEs) — those companies responsible for supplying electricity to end-use customers — to purchase allowances to account for the emissions associated with the electricity they sell that is imported. Ultimately, although there are many design complexities yet to be worked out, we find that an LSE-centered approach could present a viable pathway forward for RGGI states’ regulation of imports. It is likely to create long-term price signals about the value of clean energy and to help prevent emissions “leakage.” And importantly, an LSE-centered mechanism has a good chance of being found constitutional under the dormant Commerce Clause and Federal Power Act preemption. However, an LSE-centered approach also has some features that may be considered drawbacks: it would likely increase consumer prices within RGGI without sending any immediate price signals to out-of-state generators to incentivize their emissions reductions (instead, such price signals will develop over time as new clean generation and demand-side resources come on-line). Given these features, RGGI states will want to think carefully about whether an LSE-centered imports mechanism accomplishes their goals.