Bowfin KeyCon Holdings, LLC v. Pennsylvania Department of Environmental Protection

The Pennsylvania Department of Environmental Protection (DEP) and Pennsylvania Environmental Quality Board (EQB) filed a notice of their appeal of the Commonwealth Court’s order declaring their Regional Greenhouse Gas Initiative (RGGI) regulation void. The appeal presents the question of whether the RGGI regulation’s CO2 allowances are fees (rather than taxes, as determined by the Commonwealth Court) and thus within the scope of DEP’s and EQB’s granted regulatory authority.

The Pennsylvania Commonwealth Court declared that the Pennsylvania rulemaking that made Pennsylvania a RGGI participant was void because it constituted an unconstitutional tax imposed by the Pennsylvania Department of Environmental Protection and Environmental Quality Board. The court found that it was undisputed that “significant monetary benefits” were anticipated from participation in the RGGI carbon dioxide allowance auctions; that there was no cited authority for the agencies to obtain or retain auction proceeds for allowances purchased by non-Pennsylvania covered sources, which are not subject to the agencies’ regulatory authority and “not tethered to CO2 emissions in Pennsylvania”; that only 6% of proceeds would be attributable to the costs of administering the program; and that the auction proceeds would exceed total funds appropriated to the agencies “by nearly threefold.” The court found that participation in RGGI would thus generate moneys “grossly disproportionate” to oversight costs and annual regulatory needs and relate to activities beyond the agencies’ jurisdiction. The court held that the regulations therefore were invalid and unenforceable. The court said that RGGI participation “may only be achieved through legislation duly enacted by the Pennsylvania General Assembly.” Three judges did not participate in the case, and one judge dissented, writing that in her view there were genuine issues of material fact at this stage regarding whether the rulemaking established a fee or a tax.