Green Energy Mandates Meet the Commerce Clause

Pennsylvania’s renewable energy mandate is finally facing a constitutional test. In a lawsuit filed September 3, West Virginia argues that Pennsylvania’s requirement that many qualifying renewable generators be located within the state violates a basic principle of interstate commerce: states cannot rig markets to favor their own businesses. The case highlights a broader problem with renewable energy mandates: their high cost.

Current renewable-energy credit structure

Twenty-eight states and the District of Columbia mandate that electric utilities purchase increasing percentages of their customers’ electricity from specific types of ‘green’ generating resources. Qualifying suppliers are issued renewable energy credits, or RECs, which utilities must purchase. Utilities then pass the costs on to consumers.

Most RECs come from wind and solar generation, but some states, including Pennsylvania, allow other resources, such as waste coal and burning garbage. Moreover, solar RECs are often carved out into their own category, called SRECs.

The rationales for the mandates have spanned everything from fighting climate change and reducing U.S. dependence on foreign oil to promoting economic development and “green” jobs. While none has accomplished those goals, they have all increased electricity costs by forcing electric utilities to purchase increasing quantities of RECs and SRECs. Over the six-year period, 2020–2025, U.S. electric ratepayers paid almost $45 billion more for their electricity. As the mandates increase, so do the annual costs. The economic damage is compounded because higher-cost electricity ripples through the entire U.S. economy, increasing costs for virtually all goods and services.

In their zeal to promote in-state economic development, several mid-Atlantic states, notably Pennsylvania, also require generation owners eligible for RECs to be physically located within their boundaries. That’s problematic for ratepayers and out-of-state suppliers, as a lawsuit West Virginia filed against Pennsylvania points out.

History of Pennsylvania’s REC mandate

In 2004, when Pennsylvania enacted Act 40, its renewable energy mandate, it contained no restrictions on the physical location of qualifying generators, as long as they were within PJM, the regional grid operator that coordinates generation in 13 states and DC. But in 2017, the state amended Act 40 to restrict qualifying ‘Tier 1’ solar generators and ‘Tier II’ generators to facilities physically located within the state. The amendments made it clear that the purpose was to promote in-state economic development.

The amendments clearly promoted the well-being of in-state renewable energy developers: according to a report prepared by the Pennsylvania Public Utilities Commission, the prices of RECs soared from 22 cents per megawatt-hour (MWh) in 2018 to almost $27 per MWh in 2025, a more than 100-fold increase. In 2025 alone, Pennsylvania ratepayers paid over $700 million for renewable energy credits—about $55 per person.

Commerce Clause problem

Courts have long held that, under the Dormant Commerce Clause, states generally cannot discriminate against out-of-state economic interests to benefit in-state ones. By limiting eligibility for renewable energy credits based on physical location and explicitly citing economic development as justification, Pennsylvania has provided West Virginia ample evidence that the law discriminates against interstate commerce.

Moreover, artificially high credit prices have encouraged the development of uneconomic renewable energy, contributing to instability in PJM’s wholesale energy market and, especially, its capacity market, where prices increased by a factor of 10 over the last two years.

Pennsylvania is unlikely to be the only state to face such a challenge. New Jersey, Maryland, Massachusetts, and the District of Columbia, have similar geographic restrictions and may soon face challenges of their own. The Pennsylvania case could mark the beginning of broader scrutiny of state renewable energy mandates that favor in state generation.

With energy affordability a heightened concern, costly renewable energy mandates make little sense, especially when geographic restrictions artificially raise prices even higher. The best solution would be to eliminate these mandates entirely. Failing that, eliminating geographic restrictions such as Pennsylvania’s would be a good first step.

This article was originally published by RealClearEnergy and made available via RealClearWire.