Recently I explained why I thought DEC’s New York State’s Short-Sighted Approval of Regional Greenhouse Gas Initiative (RGGI) Amendments ignored developments that undercut the analytical basis for the rule it finalized. Potomac Economics, the RGGI market monitor, has now published its Report on the Supply and Demand for RGGI CO2 Allowances: Second Quarter 2026, and it is worth a close look because it simultaneously confirms nearly everything I have documented about the RGGI allowance market this year and demonstrates exactly the blind spot that let DEC finalize Part 242 without confronting it. This post explains why I think the report is both a vindication of my reporting and, through what it deliberately does not say, more evidence that DEC’s rulemaking record was out of date when promulgated.
I have been involved in the RGGI program process since its inception and have been writing about problems with the RGGI program here. 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. 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. I acknowledge the use of Perplexity AI to prepare this document.
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, withdrew in 2024, and rejoined effective July 1, 2026, and Pennsylvania considered joining but has since decided not to join. The Third Program Review, completed in July 2025, strengthened the regional CO2 emissions cap through 2037, with steeper reductions from 2027 to 2033 and a lower rate thereafter.
As part of its oversight role, RGGI, Inc. retains Potomac Economics as the independent market monitor for the CO2 allowance market. On August 21, 2026, RGGI, Inc. released a special report from Potomac Economics, the Report on the Supply and Demand for RGGI CO2 Allowances, which it described as intended to help compliance entities “easily access key metrics” as they prepare to meet their obligations for the sixth control period (CP6), which closes March 1, 2027. This is not a periodic publication. RGGI, Inc. has never produced a report like it before, unlike Potomac Economics’ quarterly Secondary Market Report, which was released the same day as a routine, recurring product. The timing is hard to read as coincidental. It arrives roughly three and a half months after RGGI, Inc. issued a public statement on May 8, 2026 acknowledging “high allowance prices and recent volatility” in the secondary market and pledging to watch future auction results before considering program adjustments. Whatever the stated purpose, this is the closest thing to an official accounting of “how many allowances are left” that RGGI has ever produced. I think it is the document that New York State will leans on when anyone asserts that the allowance bank will probably be sufficient to cushion consumers from near-term cost impacts.
Timeline
In 2026 the price of allowances has been higher and more volatile than anytime since the start of the program. The allowance clearing price jumped from $24.99 in the March 11, 2026 auction to $35.00 in the June 3, 2026 auction, a 40% increase, with all of 2026’s Cost Containment Reserve (CCR) allowances already exhausted by the March auction. In between, on May 8, 2026, RGGI, Inc. issued a public statement acknowledging “high allowance prices and recent volatility” in the secondary market and said it would watch upcoming auction results before considering any program adjustments — the first sign RGGI itself was paying attention to the scarcity narrative building around its program. On May 15, 2026, I published my own allowance-bank exhaustion estimate, built from Potomac’s Q4 2025 secondary-market data because RGGI does not regularly provide its own accounting of the bank’s status, and projected the bank going negative around Q3 2032 to Q3 2033. Virginia formally rejoined RGGI on July 1, 2026. On August 5, 2026, DEC and NYSERDA jointly announced they had finalized the Part 242 and Part 507 amendments, effective January 1, 2027, over the objections I described in my August 19 post. On August 21, 2026, RGGI, Inc. released Potomac Economics’ special Q2 2026 Supply and Demand report alongside its routine Q2 2026 Secondary Market Report, giving us, for the first time since the rule was finalized — and for the first time ever, in the case of the Supply and Demand report — an independent, data-driven look at exactly the allowance-bank question DEC’s response to comments treated as settled.
What the Report Confirms — and Conveniently Doesn’t Say
RGGI frames the report as a routine compliance aid, but the timing tells a different story. The August 21 announcement describes the Supply and Demand report only as a special report “intended to help compliance entities easily access key metrics” as Control Period 6 winds down, with no reference anywhere to the $35 auction, the exhausted CCR, or the market commentary treating the June price jump as evidence of scarcity. But this is the first report of its kind RGGI has ever produced, and it lands eleven weeks after that record auction and three and a half months after RGGI’s own May 8 statement acknowledging “high allowance prices and recent volatility.” An organization that had never felt the need to publish a standalone supply-and-demand accounting despite my comments arguing that it was necessary suddenly produced one, unprompted, in the same window it was publicly fielding questions about whether the market was running short. RGGI is entitled to describe its own motives, but a “compliance aid” framing that omits any mention of the price spike that plausibly prompted the report in the first place is itself a data point about how this program manages its own narrative.
The report confirms what I documented in real time about the Cost Containment Reserve running dry. I reported that all of 2026’s CCR allowances were gone by the March 11 auction. The Q2 2026 report independently reaches the same conclusion, stating that “given recent allowance price levels, all remaining CCR allowances are assumed to be sold in Auction 73”. The market monitor is now modeling full CCR exhaustion for the rest of the control period even when the Virginia CCR allotment is included in the next action. That is not a hypothetical anymore; it is the market monitor’s own baseline assumption, and it means the “release valve” DEC’s response to comments points to when it needs to reassure people about price spikes has already been used up, months before the compliance deadline crunch even arrives.
The market itself is behaving exactly as my scarcity argument predicted, even while the headline number says “surplus.” The report puts the Control Period 6 allowance surplus at 55 million tons (61% of the 2026 cap) as of the end of Q2 2026, down from 71 million tons at the end of CP5, and projects it will fall further to 45 million tons by the March 1, 2027 compliance deadline. Read in isolation, that sounds comfortable. But the report also shows that the composition of that surplus has shifted hard: investor-held allowances fell from 60 million tons at Q2 2025 to 37 million tons (68% of the surplus) at Q2 2026, while compliance-held allowances rose to 18 million tons (32%). The report attributes this to entities holding onto allowances for their own future compliance needs instead of releasing them into the secondary market, along with a rise in traders “spreading” 2026-vintage futures against 2027-vintage futures to hedge post-2026 exposure without tying up scarce near-term allowances. In plain terms, the people who actually have allowances to sell are increasingly choosing not to sell them. A surplus that will not come to market behaves like scarcity, which is exactly why the price jumped 40% in a single quarter while the official surplus number still looked fine.
Virginia’s return adds less new supply than the demand it brings with it. The report quantifies what I could only describe qualitatively in my May 9 and June 16 posts: Virginia’s re-entry adds 12.6 million allowances, including CCR, across the two remaining 2026 auctions, against 17 million tons of covered emissions Virginia generated in the second half of 2025 alone. A state that shows up with a 4.4-million-ton gap between the allowances it brings and the emissions it is already producing is not a source of relief for the regional bank; it is a net new claim on it.
The report authors twice flag their emission projections as too high. The Q2 2026 report notes that its assumption for second-half 2026 emissions “may be a conservative assumption because it does not account for the impact of recent allowance price increases” suggesting that higher prices could suppress emissions. This theory is an article of faith for RGGI advocates but is flawed in my opinion. Many other factors impact electricity generation emissions including unit performance, major transmission outages, abnormal weather, fuel pricing, and electric demand in the short term. In the long-term patterns of electric production, electrification, and large load growth affect demand and emissions which are inextricably connected. I believe that these inelastic factors outweigh allowance price impacts on emissions such that higher allowance prices just mean more consumer costs.
Given my pre-retirement responsibility tracking RGGI allowance compliance holdings relative to emissions I want to highlight the following claim in the report: “A substantial share of the allowance surplus is held for compliance purposes – The number of surplus allowances held for compliance purposes was 18M (or 32 percent of the surplus) at the end of the second quarter.” The report goes on to say “The compliance entities that hold these surplus allowances have generally not made them available for sale in the secondary market in the past, presumably intending to use them for compliance in the next control period.” There has always been a disconnect between compliance entities and the academic theory of market programs like RGGI. The theory is that compliance entities consider opportunities to make money in the secondary market, but the reality is that the compliance risk of insufficient allowance trumps that option. If they do not have the allowances, then they will not run so the fact that only 32% of the surplus is held for compliance is concerning. Also consider that means that 68% of the surplus is held by investors. Presumably those investors want to maximize their profits so I think that means it is unlikely that costs will allowance prices will drop significantly because the surplus margins are small.
Most importantly, the report explicitly refuses to say anything about the exact question DEC needed an answer to before finalizing Part 242. The Q2 2026 report states plainly that “analysis of these factors” — meaning the post-2027 cap trajectory and the implications of the Third and now-needed Fourth Program Review — “is beyond the scope of this report.” That is an honest disclosure by Potomac Economics about what its report does and does not cover. But it also means the projected allowance surplus says nothing about the annual cap cuts of more than 10% of the 2025 budget that begin in 2027 and run through 2033; That is an entirely different order of scarcity than the roughly 2-million-ton annual declines this report is describing for 2023 through 2026. My own allowance-bank model, using the steeper post-Third-Program-Review cap, projects the bank going negative by 2032 or 2033 — a conclusion this report cannot confirm or refute because it was never designed to look that far ahead. Treating a Control Period 6-scoped market-monitor report as evidence that the post-2027 cap trajectory is manageable, which is functionally what DEC’s response to comments does, is exactly the kind of error the report’s own scope disclaimer should have prevented.
Bottom Line
RGGI, Inc. will not say this report exists because of the $35 auction and the scarcity questions that followed it, but the timing makes the connection hard to dismiss. Potomac Economics did its job. Its Q2 2026 report is a careful, appropriately hedged accounting of the sixth control period’s allowance bank, and it independently confirms nearly every specific claim I have made in my reporting this year: the 2026 CCR allowances are gone, the market is hoarding rather than releasing allowances as the compliance deadline nears, Virginia’s return brings more emissions than allowances, and the market monitor’s own baseline assumptions may understate how tight things really are. The failure here is not the market monitor’s. It is DEC’s. DEC and NYSERDA finalized Part 242 on August 5 leaning on “the Cost Containment Reserve” and “the allowance bank” as reasons consumer impacts would be manageable, without ever grappling with the fact that the only rigorous, independent accounting of that bank explicitly declines to say anything about the post-2027 period the amendments actually govern. A report that says “the near-term bank is fine, but we are not going to tell you anything about the long-term bank” is not evidence that the long-term bank is fine. DEC should stop citing the allowance bank as a reassurance it has not earned, and it should push for an immediate start to the Fourth Program Review rather than letting the “no later than 2028” timeline it floated in its response to comments run out the clock on a cap trajectory that its own market monitor will not vouch for.
Pragmatic Environmentalist of New York 