Roger Caiazza
A month ago I described the status of the Regional Greenhouse Gas Initiative (RGGI) after the announcement that Virginia was rejoining the program. The Quarter 2, 2026 auction was held on June 3, 2026. The closing price was $35.00 up 40% from the March 11, 2026, auction price of $24.99 (Figure 1). The RGGI announcement noted that “the RGGI states intend to begin a scoping process to consider further targeted measures to continue to achieve reliable, clean electricity supply at affordable prices for consumers.” Even though the RGGI states are now concerned the question is whether they can react appropriately.
Figure 1: RGGI Quarterly Auction Clearing Price
RGGI Status
Proponents of RGGI claim that there has been a 40% reduction in emissions implying RGGI contributed to those reductions. Figure 2 plots CO₂ emissions by fuel type across all RGGI eleven states from 2006 to 2025. What you see is fuel switching caused the reductions and that there are only minor opportunities for future fuel switching. When I analyzed the 2023 RGGI investment proceeds report, I found that only about 7.6% of observed emission reductions could be attributed to RGGI‑funded projects despite RGGI auction proceeds of over $7 billion since 2021. Changes to Federal policy, supply chain issues, and inflation coupled with load growth all indicate that reductions from other programs are unlikely as well.
Figure 2: Eleven State RGGI CO₂ Emissions (short tons) for all Programs 2006–2025
The second-quarter 2026 RGGI auction confirms that the program has become both an immediate affordability problem for consumers and a growing reliability risk. I described the calculation methodology and New York numbers in a detailed post at my blog so I will only provide a summary here.
Consumers in RGGI states were hit hard by allowance costs in 2025. In 2025 the RGGI-affected sources emitted 86.4 million tons of CO2, and the average auction price was $22.09 so that equates to $1.94 billion to cover the cost of allowances purchased at auction. At a $35.00 allowance price in the future that equals an increase of $1.32 billion to a total of $3.02 billion.
There is a second consumer impact of RGGI allowance costs that has not been acknowledged by the states. When generating units bid to sell their power in daily electricity market auctions, they include the cost to purchase replacement RGGI allowances. If the clearing price is set by a unit that must comply with RGGI, then the added cost of RGGI allowances is included in their bid. The problem for consumers is that every generating unit gets paid the clearing price. That means facilities with no RGGI compliance obligations still get paid as if they did. As a result, those facilities garner windfall profits at the public’s expense. I could not find a source for total state electric generation for the RGGI states that is necessary to estimate this impact. In New York I estimated that consumers paid an additional $1 to $3 billion for this RGGI market cost adder. If this consumer cost adder is proportional to the ratio of total RGGI to New York only allowance costs for emissions, then over all the RGGI states the market impact is 2.7 times greater or $2.7 billion to $8.1 billion. The regional transmission operators need to provide estimates of these impacts.
I also found that the allowance cap reduction trajectory is fundamentally incompatible with historical and expected emissions trends (Figure 3). The updated cap path reduces allowances by more than 10 percent of the 2025 budget each year from 2027 through 2033, despite the fact the region has never sustained reductions of that magnitude and recent years have seen emissions rise with load growth. When banked allowances are accounted for, the analysis indicates that the system could effectively “run out” of allowances as early as the second quarter of 2032, forcing compliant units either to shut down or to operate out of compliance.
Figure 3: Quarterly RGGI Allowance Balance, Emissions and Allowance Cap
Despite claims that RGGI is a successful program my review of RGGI investment reports suggests that auction proceeds are being deployed inefficiently: the implied cost per ton reduced is far above common social cost of carbon values, and RGGI-funded projects explain only a small fraction of observed reductions.
RGGI Stakeholder Engagement Announcement
The RGGI announcement suggested that costs of RGGI have become a liability. The statement includes claims that there have been benefits.
RGGI has a long history of providing economic and environmental benefits across the region, including through the states’ investments of auction proceeds, which have directly benefitted over 8 million households and 400,000 business in the region to date, and will save ratepayers over $20 billion on their energy costs.
The announcement goes on to argue that the revisions finalized last summer represent improvements.
The RGGI participating states are committed to ensuring the continued success of the RGGI market. Updates to RGGI announced in July 2025, which take effect in January 2027, represent improvements to the program, including expanded cost containment measures that will increase allowance supply.
I do not agree that these changes were enough of an improvement to forestall problems. RGGI states have never acknowledged the incompatibility of their emission cap reduction trajectory relative to observed and possible future emission reductions. The expanded cost containment measures do increase allowance supply but will be insufficient to prevent an inevitable shortfall of allowances. It is time for the RGGI states to acknowledge and address the impact of RGGI allowance costs on the electric market. The fact is that RGGI is too blunt a tool to force emission reductions. Therefore, it is encouraging that the additional measures to address problems are contemplated.
Following this auction, the RGGI states intend to begin a scoping process to consider further targeted measures to continue to achieve reliable, clean electricity supply at affordable prices for consumers.
The language suggests limited changes. Given that New York’s targets for emission reductions have changed I think it is only a matter of time until other jurisdictions bow to reality too. RGGI will negatively impact reliability if the cap trajectory is based on arbitrary political mandates and not realistic deployment timelines for the generation necessary to displace RGGI-affected sources. The recent increases in load due to data centers and electrification initiatives were also unanticipated and need to be acknowledged. Finally, while the RGGI states have always acknowledged the leakage could be a problem this is no longer a theoretical concern. I believe the cost of RGGI allowances is at the point where it exceeds fuel costs. That necessarily means leakage will be a problem.
As part of that process, the RGGI states will offer opportunities to engage stakeholders for feedback on the range of topics to be considered and analyses that could be conducted, such as analyses related to ensuring RGGI’s continued benefits to residents, affordability to consumers, and the smooth reintegration of Virginia into the market.
These platitudes are all fine but do not suggest any sense of urgency. The third program review process started in late 2021 and did not get resolved until mid-2025. There is no question that there is an affordability crisis. To the extent that RGGI’s current prices are exacerbating that crisis, I believe immediate action is required not a four year process. These issues also raise the question whether Virginia should join RGGI in July or wait until next year. The current 3-year compliance period ends in December. I think they should wait until next year because keeping track of compliance accounting with one state included for two quarters will be a never-ending accounting hassle.
Market Monitor Report
Potomac Economics monitors the conduct of market participants in the RGGI CO2 allowance auction and in the secondary market to identify indications of market manipulation or collusion. Contrary to EPA market programs that provide allowance ownership data information readily available, RGGI does not disclose who owns the allowances in circulation. Instead, Potomac Economics only provides the number of allowances held by three categories (Figure 4).
Figure 4: Classifications of Participant Firms in the RGGI Marketplace
Source: Market Monitor Report for Auction 72
Potomac Economics defines these categories as:
- Compliance-Oriented Entities are compliance entities that appear to acquire and hold allowances primarily to satisfy their compliance obligations.
- Investors with Compliance Obligations are firms that have compliance obligations but which hold a number of allowances that exceeds their estimated compliance obligations by a margin suggesting they also buy for re-sale or some other investment purpose. These firms often transfer significant quantities of allowances to unaffiliated firms
- Investors without Compliance Obligations are firms without any compliance obligations.
There is a fourth entity type not considered. According to an Adirondack Council press release, in June 2017 they purchased 2,000 RGGI allowances. They note that at that time they had purchased a total of 17,000 allowances. The release notes that:
“We offer a Carbon Reduction Certificate that allows donors to retire a ton of carbon from the market, while also supporting the development of a low-carbon economy in the Adirondack Park,” said Janeway. “For a $25 donation, we will retire a ton of carbon from the RGGI market in your name and send you a certificate commemorating the importance of the gift to the future of the Adirondack Park.”
I have not seen any update in years but I suspect that this organization’s holdings are not large. However, there could be other organizations or individuals that could hold allowances that they do not intend to put back on the market. It has always been my understanding that all three categories include firms that own allowances that they would be willing to sell or use to satisfy compliance obligations. If there are a significant number of allowances held by entities that wish to prevent affected sources using the allowances by withholding them for sale or compliance obligations, then it could affect compliance decisions and the market itself.
There are indications in the Market Monitor Report for Auction 72 that the high allowance prices are the new normal. After settlement in the last auction compliance entities held 65% of the allowances. Potomac Economics claims that “78% of the allowances in circulation are believed to be held for compliance purposes.” I have issues with the remaining 22% of the allowances. Concerns about market manipulation or collusion suggest that entities could work together to maximize profits by increasing costs. In the last auction compliance entities purchased 58% of the allowances. It takes no collusion to know that the allowances are getting scarcer so why would anyone who purchased the remaining 42% sell their allowances for anything less than $35?
The report notes that “Although the quantity for which bids were8 submitted above the CCR Trigger Price of $18.22 per ton exceeded the initial offering, the Cost Containment Reserve (“CCR”) for 2026 was fully released in Auction 71, and no additional CCR allowances were available in this auction. The CCR is the primary cost control mechanism. In the last auction the market decided that allowances were worth more than the price that would trigger more allowances in the second CCR tier to be added through 2029. The market does not think that the RGGI cost reduction mechanism will be enough to prevent prices higher than the states thought were acceptable.
Conclusion
I believe that RGGI now poses unacceptable affordability and reliability risks and needs immediate, fundamental revision. The RGGI states must acknowledge the enormity of the risks and engage regulators, system operators, and state lawmakers to consider substantive changes rather than the incremental tinkering contemplated in recent RGGI communications.
Roger Caiazza blogs on New York energy and environmental issues at Pragmatic Environmentalist of New York. Dealing with the RGGI regulatory and political landscapes is challenging enough that affected entities seldom see value in speaking out about fundamental issues associated with the program. He has been involved in the RGGI program process since its inception and has no such restrictions when writing about the details of the RGGI program. This represents his opinion and not the opinion of any of his previous employers or any other company with which he has been associated.
