Pragmatic Environmentalist of New York “RGGI Third Program Review Delays Reckoning”, By rogercaiazza
Pragmatic Environmentalist of New York
RGGI Third Program Review Delays Reckoning
By rogercaiazza on July 11, 2025
The Regional Greenhouse Gas Initiative (RGGI) is a market-based program to reduce CO2 emissions from electric generating units. One aspect of RGGI is a regular review of the program status and need for adjustments. On July 3, 2025, RGGI announced that results of the Third Program Review. Based on my analysis of the planned revisions, the RGGI States only delayed the inevitable reckoning of the futility of this program to achieve the goal of a “zero-emissions” electric system.
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. I have been involved in the RGGI program process since its inception and have no such restrictions when writing about the details of the RGGI program. I have worked on every cap-and-trade program affecting electric generating facilities in New York including RGGI, the Acid Rain Program, and several Nitrogen Oxide programs, since the inception of those programs. I also participated in RGGI Auction 41 successfully winning allowances and holding them for several years. The opinions expressed in this post do not reflect the position of any of my previous employers or any other organization I have been associated with, these comments are mine alone.
Background
RGGI is a market-based program to reduce greenhouse gas emissions (GHG) (Factsheet). It has been a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions from the power sector since 2008. New Jersey was in at the beginning, dropped out for years, and re-joined in 2020. Virginia joined in 2021 but has since withdrawn, and Pennsylvania has joined but is not actively participating in auctions due to on-going litigation. According to a RGGI website:
The RGGI states issue CO2 allowances that are distributed almost entirely through regional auctions, resulting in proceeds for reinvestment in strategic energy and consumer programs.
Proceeds were invested in programs including energy efficiency, clean and renewable energy, beneficial electrification, greenhouse gas abatement and climate change adaptation, and direct bill assistance. Energy efficiency continued to receive the largest share of investments.
The RGGI States regularly review successes, impacts, and design elements of the program. This is the third iteration of the review program. It started in February 2021 and finally was completed in June 2025, years behind schedule.
I was an active participant in the program review. I described my initial comments in October 2023 addressing the disconnect between the results of RGGI to date relative to the expectations in the RGGI Third Program Review modeling. Last October I submitted more comments as described here. I also describedother comments submitted to RGGI.
Third Program Review Summary
The RGGI summary of the program review changes states:
The 10 states participating in the Regional Greenhouse Gas Initiative (RGGI) have agreed to strengthen their regional carbon dioxide (CO2) emissions cap through 2037, starting in 2027, and establish new mechanisms to protect energy affordability. These updates will ensure the longstanding bipartisan initiative’s continued success in promoting clean air, health and economic benefits across the region. States also agreed to launch their next Program Review no later than 2028, as part of their commitment to regularly evaluate their CO2 budget trading programs. The next Program Review will consider factors such as changes in energy policy, the pace and scale of electricity load growth, progress in clean energy deployment, and ongoing efforts to ensure energy affordability.
The updates are designed to:
Provide stability and certainty to market participants, including power producers who purchase allowances to match their emissions and developers of new electricity generation resources.
Ensure access to sufficient RGGI allowances to meet expected energy demand and bolster price protection for consumers. RGGI states will continue to invest the proceeds from those allowances into programs that lower electricity bills and provide economic benefits to local communities, including energy efficiency, renewable energy, and bill assistance programs.
Confirm states’ long-term commitments to energy affordability, public health, and the environment, maintaining an economic climate in which innovative companies and the region’s workforce thrive.
Changes to the Allowance Allocation Budget
The allocation budget sets the limits on future emissions. Strengthening the cap means reducing the allocations. The RGGI summary describes the changes to the budget:
The updated Model Rule reduces the regional emissions cap in 2027 to 69,806,919 tons of CO2 from 75,717,784 tons under the previous Model Rule (Figure 1). Allowances decline by an average of 8,538,789 tons per year, which is approximately 10.5% of the 2025 budget, thereafter through 2033. Then, from 2034 through 2037 the cap will decline by 2,386,204 tons of CO2 annually, which is approximately 3% of the 2025 budget. Subsequent years are set to match the 2037 emissions cap. No adjustments are made to banked allowances, which continue to be available for compliance. (As of July 2025, the estimated bank of privately held allowances more than RGGI compliance obligations is around 67 million tons.) Setting the regional cap beyond 2037 will be addressed in the next RGGI Program Review, to begin no later than 2028.
This figure compares the current regional base cap (light blue) with the updated cap trajectory (dark blue). The orange and yellow lines display the total updated regional cap if all allowances are released from the updated first and second Cost Containment Reserve (CCR) tiers, respectively.
This figure compares the current regional base cap (light blue) with the updated cap trajectory (dark blue). The orange and yellow lines display the total updated regional cap if all allowances are released from the updated first and second Cost Containment Reserve tiers, respectively.
The two-tiered CCRs is another revision in the Third Program Review. The CCR is a reserve of allowances that is released if costs exceed certain limits. In my comments on the draft revisions, I argued that the biggest issue is how the allowances allocated for the annual caps and the bank of already allocated allowances held compared with actual emissions. Environmental activists demand that the allowance cap “bind” emissions to ensure that the reductions occur on their preferred arbitrary trajectory. They don’t understand that a binding cap will limit emissions even if the zero-emissions resources are not available to displace the existing emissions. The ramifications of that situation are enormous. In the worst case, an electric generating unit needed to keep the lights on will refuse to operate because they have insufficient allowances. The two-tier CCR resolves this problem for a while anyway.
Table 1 quantifies the allowance allocations for the Policy Update, the Current Program and includes the allowance bank from the RGGI Secondary Market Monitoring Report. Note that trying to figure out the allowance allocations is a non-trivial task so I relied on a Perplexity AI search. The numbers do not match but for my purposes that is not a concern. One of the controversial topics during the Third Program Review was the acceptable size of the allowance bank. Activists without any compliance responsibilities think the bank should be zero. Regulated entities and the regulators recognize that the bank is required because it represents current compliance obligations, a safety margin for extreme weather conditions, and that non-compliance entities own a significant share of the bank. The regulators and the regulated entities argue about the size of the bank but not its necessity. There is another important aspect of the bank. Regulated entities generally purchase allowances as needed and keep their banked allowances at a fixed percentage of expected emissions. In other words, there is no nefarious reason for the bank.
Table 1: RGGI Allowance Allocations 2015- 2040 and Recent Allowance Bank
Table 2 compares recent emissions to the Current Program allowance allocations and the Policy Update allowance allocations. The observed emission trend since 2015 is affected by the addition of New Jersey and Virginia to the program so I included the emissions without Virginia. Note that there is quite a bit of interannual variation and an increase in emissions between 2019 and 2022. The increase in emissions was affected by New York’s idiotic shutdown of 2,000 MW of zero-emissions nuclear power. The takeaway from this is that since 2015 there hasn’t been any major reduction in emissions despite RGGI investments and Federal subsidies.
Table 2: RGGI Emissions and Allowance Allocations 2015 – 2040
In 2027 the Policy Update mandates a 20% reduction in the allowance allocated. Initially that could be covered by dipping into the allowance bank, but eventually existing fossil generation must be displaced by zero-emissions resources. My back of the envelope estimate is that 2.8 GW of solar, 2.4 GW of onshore wind, and 1.2 GW of offshore wind would have to come online to displace the fossil emissions necessary to meet the 2027 allowance allocation decrease. The other alternative is that compliance entities will compete to buy allowances necessary for compliance and trigger a price increase that will kick in the Cost Containment Reserve which will provide enough allowances for compliance. As the Policy Update steep reduction requirements continue eventually the second Cost Containment Reserve will kick in. Inevitably, there will come a time when the only viable control option is for zero-emission resources to displace the fossil units to meet the compliance requirements. In my opinion, the reduction trajectory was based on meeting aspirational targets in the Climate Act and other state’s programs rather than a feasibility projection of what could reasonably be implemented.
Discussion
Cap-and-invest programs like RGGI are frequently touted as a program that will kill two birds with one stone: “It simultaneously puts a limit on the tons of pollution companies can emit — 'cap' — while making them pay for each ton, funding projects to help move the jurisdiction away from polluting energy sources — 'invest.'" That is the theory and RGGI is the experiment.
The RGGI experiment is getting more complicated which I think accounts for the long delay finalizing the policy update. The changes to the participating states was a major reason for the delay. A reasonable allowance reduction trajectory when Virginia or Pennsylvania was in the program will not be reasonable when either state is not in the program because their emissions are large and there is more opportunity for fuel switching reductions. When you consider the conflicting reduction goals of the states the challenge of an acceptable consensus becomes very difficult.
The RGGI Policy updates were designed to support three goals. Firstly, “Provide stability and certainty to market participants”. The power producers now know when it is unlikely that there will be sufficient allowances for fossil units to continue to operate like they currently do. My bet is 2032 when the allowances allocated in the Policy Update plus both CCR allocations will be 30% less than current emissions because I do not think that there will be sufficient zero emission renewable resources developed by then. The second goal was to “Ensure access to sufficient RGGI allowances to meet expected energy demand and bolster price protection for consumers.” The Policy Update provides access for now. They have punted accountability for this goal, and I bet that by 2032 the goal will be unattainable. The final goal is “long-term commitments to energy affordability, public health, and the environment, maintaining an economic climate in which innovative companies and the region’s workforce thrive”. This is just a marketing slogan.
Late last year I published an article that documented that RGGI performance to date, The results are not promising. The RGGI States claim that they will continue to “invest the proceeds from allowances into programs that lower electricity bills and provide economic benefits to local communities, including energy efficiency, renewable energy, and bill assistance programs.” Given that recent Federal legislation is cutting subsidies to renewable development the priorities of proceed investments needs to be revisited. While bill assistance programs are necessary to reduce impacts to those least able to afford the RGGI carbon tax, the observed performance of RGGI emission reduction investments for energy efficiency and renewable energy projects has not been good enough to expect that the ambitious emission reduction targets can be achieved using RGGI proceeds.
Ultimately, I am convinced that no GHG emission reduction cap-and-invest program will succeed. Danny Cullenward and David Victor’s book Making Climate Policy Work explains why. They note that the level of expenditures needed to implement the net-zero transition vastly exceeds the “funds that can be readily appropriated from market mechanisms”. Even though RGGI allowance prices will increase significantly, they still will be insufficient to fund the necessary development of zero emission resources. Note that when the allocations go down the proceed will drop too. I intend to follow up this post with another specifically addressing auction price ramifications.
Conclusion
The Third Program Review Policy Update features an allowance allocation schedule that is consistent with RGGI State net-zero regulations. That trajectory is inconsistent with wind and solar deployment history and reasonable expectations. As a result, there eventually will be insufficient allowances available for CO2 emitting generation resources to operate. The use of a CCR and addition of a second CCR will delay the inevitable reckoning but in less than ten years I expect that RGGI will need to be abandoned as a feasible emission reduction strategy.
BOTTOMLINE: “The Third Program Review Policy Update features an allowance allocation schedule that is consistent with RGGI State net-zero regulations. That trajectory is inconsistent with wind and solar deployment history and reasonable expectations. As a result, there eventually will be insufficient allowances available for CO2 emitting generation resources to operate. The use of a CCR and addition of a second CCR will delay the inevitable reckoning but in less than ten years I expect that RGGI will need to be abandoned as a feasible emission reduction strategy.”