Regional Greenhouse Gas Initiative (RGGI)

The Regional Greenhouse Gas Initiative (RGGI) was the first mandatory cap-and-trade program in the United States to limit carbon dioxide (CO2) from the power sector. The states currently participating are Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont. New Jersey will rejoin in 2020.

RGGI was established in 2005 and administered its first auction of CO2 emissions allowances in 2008. By 2020, the cap-and-trade program is expected to help the states reduce annual power-sector CO2 emissions 45 below 2005 levels. The states have set a goal of reducing emissions an additional 30 percent by 2030.

RGGI requires fossil fuel power plants with capacity greater than 25 megawatts to obtain an allowance for each ton of CO2 emitted annually. Power plants within the region may comply by purchasing allowances from quarterly auctions, other generators within the region, or offset projects. RGGI states have seen more than $3 billion in economic benefits from the Northeast’s cap-and-trade program.

RGGI History

Program Development and Model Rule

In 2005, the governors of Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York, and Vermont signed a Memorandum of Understanding (MOU) to reduce CO2 emissions within the northeastern and mid-Atlantic region. In 2007, RGGI was expanded to include Maryland, Massachusetts, and Rhode Island. The ten signatory states agreed to be jointly responsible for carrying out the provisions featured in the MOU.

RGGI States

First, the states agreed to adopt individual shares of the overall RGGI CO2 cap and to implement state-level CO2 emissions budgets, based on analysis of historical CO2 emissions and negotiations amongst all the participating states. Second, the states developed a Model Rule to serve as a common framework for individual state-level regulations. The Model Rule was adopted in 2008 and updated in 2013 to account for changes in the program design following a 2012 program review. In 2016, the program was reviewed again and the 2017 Model Rule was released in 2018.

Between 2008 and 2013, RGGI operated on the basis of the original Model Rule, which served as a regulatory blueprint for each member state, and the main details remain unchanged. Under the Model Rule framework, each state enacted individual regulations that covered entities were required to comply with in order to participate in the regional trading program. An initial regional CO2 cap of 188 million tons applied from 2008 to 2011; the cap was lowered to 165 million tons for 2012 and 2013, after New Jersey left the program. The Model Rule identified methods and standards for quarterly CO2 allowance auctions, and parameters for tracking acquisition and transfers of CO2 allowances through the RGGI CO2 Allowance Tracking System (RGGI COATS). The original Model Rule also established conditions for verifying the eligibility of offset credits.

RGGI states have seen more than $3 billion in economic benefits from the Northeast’s cap-and-trade program.

RGGI CO2 Emissions by Sector in 2016

First Control Period (2009–2011)

In the first control period, between 2009 and 2011, RGGI auctioned 395 million CO2 allowances, or 70 percent of the total 564 million available. CO2 emissions in the region fell below the cap, leaving a surplus of unsold CO2 allowances. Over the program’s first fourteen quarterly auctions, the clearing price for CO2 allowances ranged between $1.86 and $3.35, yielding $922 million in revenue. A report by the New York State Energy Research and Development Agency attributes the region’s decrease in CO2 emissions to fuel-switching from petroleum and coal to less carbon-intensive natural gas, lower electricity demand, and increased nuclear and renewable capacity.

At the end of the first control period, New Jersey Gov. Chris Christie withdrew the state from RGGI.

Second Control Period (2012–2014)

The nine remaining RGGI states continued the program, lowering the cap to account for New Jersey’s departure. Demand for allowances throughout 2012 remained low, with prices never exceeding $1.93. Demand increased dramatically, however, upon release of the updated Model Rule, which lowered the 2014 CO2 budget to 91 million tons. At the next auction, clearing prices rose as high as $3.21 and 100 percent of allowances were sold. Between 2012 and 2013, nearly 80 percent of allowances offered at auction were sold.

Changes after 2012 Program Review

Starting Jan. 1, 2014, member states began implementing the updated Model Rule adopted in late 2013. The 2014 emissions cap of 91 million tons of CO2 was set 45 percent lower than 2013, to be closer to projected emissions in 2014, and was set to decline 2.5 percent annually until 2020.

In addition to reducing the cap, the 2012 Program Review introduced several policy provisions. One of these is a Cost Containment Reserve (CCR), intended to keep the price of allowances from rising above a program-wide trigger price ($4 in 2014, $6 in 2015, $8 in 2016, $10 in 2017, and increasing 2.5 percent annually thereafter). The CCR consists of a limited supply of additional CO2 emission allowances separate from the annual RGGI Program CO2 Budget, which are to be made available for purchase when demand for allowances causes the clearing price to exceed the trigger price.

RGGI Annual CO2 Emissions Cap

Third Control Period (2015–2017)

Allowance prices steadily increased through 2015 to a high of $7.50 per ton as nuclear plant closures were announced and the Obama administration released its Clean Power Plan. The 2015 Cost Containment Reserve fully sold out, demonstrating its effectiveness at slowing price increases. However, prices fell steadily through 2016 and early 2017 to a low of $2.53 per ton as it became clear that the Clean Power Plan would not be implemented. After the 2016 Program Review was completed and RGGI states announced a cap reduction goal of 30 percent by 2020, prices increased again. All allowances offered in the first auction of the third compliance period were sold.

Changes implemented after the 2016 Program Review

On Aug. 23, 2017, RGGI states announced proposed changes to the program as part of the 2016 Program Review. They announced an overall cap reduction of 30 percent between 2020 and 2030. The CCR mechanism remains in place, but with higher trigger prices ($13 in 2021, increasing 7 percent annually). A new mechanism called the Emissions Containment Reserve (ECR) will be implemented beginning in 2021. Under the ECR, states can choose to withhold up to 10 percent of their annual budget, if prices fall below certain triggers ($6 in 2021, increasing 7 percent annually). In this way, states can choose to force more reductions if prices are lower than currently projected. Seven states (Connecticut, Delaware, Maryland, Massachusetts, New York, Rhode Island, and Vermont) intend to implement the ECR.

These changes will be finalized after each state undergoes its own regulatory process to approve them.

Fourth Control Period (2018–2020)

Thus far, there have been six auctions. Allowance prices have dropped from the previous control period to an average price of $4.76. This will be the final control period before the overall cap is reduced between 2020 and 2030. Nearly all RGGI states (except for New Hampshire) have formally committed to advance the goals of the Paris Agreement, to reduce their emissions 26 to 28 percent below 2005 levels by 2025.

New RGGI States

Since 2018, Virginia has attempted to join RGGI through various pathways. In April 2019, Virginia attempted to join RGGI by adopting a cap-and-trade program similar to RGGI. However, in May 2019, Virginia’s governor signed a budget which included a rider barring the commonwealth from participating in RGGI for the 2019 – 2020 fiscal year. The commonwealth remains interested in seeking market-based mechanisms for reducing carbon emissions.

In June 2019, New Jersey finalized two rules to rejoin RGGI after withdrawing from the compact in 2012. The first rule, the Carbon Dioxide Budget Trading rule, sets the state’s electricity generation overall cap at 18 million short tons for 2020. Its CO2 budget will decline by 30 percent through 2030. The second rule, the Global Warming Solutions Fund rule, establishes how the revenue from the RGGI allowance auctions will be spent, a majority of which be allocated towards environmental justice communities.