Category: Regional Greenhouse Gas Initiative

At the May 6, 2026, Transmission Planning Advisory Subcommittee meeting, the New York Independent System Operator (NYISO) described an update to the 2025–2044 System & Resource Outlook (Outlook) and invited stakeholders to provide feedback on the planned analyses.  This post describes the comments I submitted related to recent Regional Greenhouse Gas Initiative (RGGI) developments and last winter’s extreme weather.  I also filed these comments to Case 15-E-0302 – Proceeding on Motion of the Commission to Implement a Large-Scale Renewable Program and a Clean Energy Standard and Case 22-M-0149 – Proceeding on Motion of the Commission Assessing implementation of and Compliance with the Requirements and Targets of the Climate Leadership and Community Protection Act.

I have extensive experience in two relevant areas: the Regional Greenhouse Gas Initiative (RGGI) and meteorological impacts on electric utility systems, and I based my comments on that experience. The opinions expressed in this post and in my filing do not reflect the position of any of my previous employers or any other organization with which I have been associated; these comments are mine alone.

Background

The NYISO is responsible for electric resource planning for New York State.  The Comprehensive System Planning Process (CSPP) consists of four components: the Local Transmission Planning Process (LTPP), the Reliability Planning Process (RPP), the Economic Planning Process, and the Public Policy Transmission Planning Process. My particular interest is the RPP.

Last December a NYISO update on the CSPP that described the Reliability Planning Process.  It is a two‑year process that starts in even years and has two components. The Reliability Needs Assessment (RNA) “evaluates the adequacy and security of the Bulk Power Transmission Facilities (BPTF)

over a seven-year Study Period (years four through ten of the next ten years) and identifies Reliability Needs defined as violations of Reliability Criteria” established by regulatory authorities.  The System & Resource Outlook is performed in the years between RNA.s  It includes the following:

• 20-year study of system and congestion
• Identifies, ranks, and groups congested elements
• Assesses the potential benefits of addressing the identified congestion
• Provides information to developers and marketplace regarding future challenges in the New York power system

The current analysis covers 2025 to 2044, so it must consider the transition requirements of the Climate Leadership & Community Protection Act (Climate Act).

RGGI

I recently published several articles describing RGGI issues that are relevant to the Outlook.  In the first article, I provided background information on the impact of the April 29, 2026 RGGI statement that Virginia was rejoining the program. In the days that followed, the futures market price of RGGI allowances nearly doubled, and the spot market cost also increased significantly.  In response on May 8, the RGGI states issued a notice that they were monitoring the allowance market in response to a sharp increase in the secondary futures market price.  This is relevant to the Outlook because it indicates that current and future allowance prices, allowance availability, and overall generating unit economics are far more volatile than in the past

RGGI Allowance Availability Risk

My second article compared historical emissions to the current RGGI allowance cap trajectory.  My analysis of RGGI emissions shows that the primary cause of historical emission reductions was fuel switching, and that RGGI emissions have leveled off since 2019, when opportunities for further fuel switching ended. When I analyzed the 2023 RGGI investment proceeds report, I estimated that only about 8% of observed emission reductions could be attributed to RGGI‑funded projects.  Changes to federal policy, supply chain issues, retirement of key nuclear assets, rejection of new permits to build natural gas combined‑cycle units, and inflation coupled with load growth all indicate that significant near‑term reductions in RGGI emissions are unlikely.

Figure 1: Eleven State RGGI CO₂ Emissions (short tons) for all Programs 2006–2025

The RGGI webpage describes the current allowance cap trajectory.  The RGGI states developed the allowance cap trajectory so it would be consistent with state laws that require emissions to go to zero.   As a result, the allowances allotted to the program decline by approximately 10.5 percent of the 2025 budget per year from 2027 through 2033.

To determine when the allowances will run out it is necessary to consider emissions, allowances held in the market and when allowances are added to the market.  RGGI does not provide a report that describes the status of the allowance bank, so I had to develop my own estimate.

The projected trajectory of emissions and allowances is shown in Figure 2. It plots the quarterly emissions (green), allowance cap (dark blue), added allowances (light blue), and allowance balance (orange).  For this analysis, I assumed emissions stay constant.  This analysis estimates that during the third quarter of 2032 there will be insufficient allowances for expected emissions.  Needless to say, the Outlook must account for the potential that generating units will have to shut down to comply with the RGGI regulations well before the Outlook end date of 2044.

Figure 2:  Quarterly RGGI Allowance Balance, Emissions and Allowance Cap

RGGI Market Cost Adder

I was encouraged by electric system experts to write a post and submit comments about the two effects of RGGI allowance prices on customer supply costs: the direct cost of the allowances needed for each generating unit and the impact of the cost adder used by generating units in their bid prices.  My third recent RGGI article estimated the impact of the cost adder relative to recent RGGI allowance price volatility.

The third article provides details so I will not describe the analysis details here.  The impact on consumers is complicated and I did not understand the ramifications until now.  When generating units bid to sell their power in daily 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.  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, they garner windfall profits at the public’s expense.

When allowance costs were low this effect was relatively small, but allowance costs increase when there is uncertainty (like adding Virginia to the program) or there is a scarcity of allowances (like will happen with the unrealistic allowance cap trajectory).  Costs are no longer low and will only go higher.  I estimated the effect of the NYISO market clearing-price adder that is passed through to ratepayers in a range of scenarios that represent possible adder costs. 

Prior to this personal revelation, I was under the impression that the cost to consumers was only the cost of allowances consumed, which in 2025 was about 708 million dollars.  My analysis found that if every fossil unit in New York were a modern state-of-the-art combined-cycle unit then the market costs would add $1.16 billion to consumer bills.  Using average 2025 heat‑input‑weighted data for New York RGGI units, the estimated statewide cost impact is 2.26 billion dollars.  I believe that the true cost is closer to this estimate, which is nearly three times the direct cost of purchasing allowances alone

It gets worse because the windfall profits do not accrue just to New York generators.  All imported electricity delivered to New York is affected by RGGI costs. Imported electricity from outside New York has the same perverse outcome: embedded RGGI costs paid in the exporting state are included in the prices paid by New York consumers.  My analysis does not include these costs, so  I am underestimating the impact of RGGI costs.

When the RGGI announcement that Virginia was going to rejoin the program was made, there was a price spike that approximately doubled the cost of RGGI futures. If futures prices are a good indicator of future allowance prices and that projection is realized, then all of these cost estimates would roughly double.

There is another impact.  The allowances proceeds available for investments are much less than the cost to consumers due to the electric market impact.  In 2025 there were 20,902,887  New York adjusted allowances available and at an average cost of $22.09  that means that $461,797,031 was raised that can be invested for RGGI program objectives.  These results show that the RGGI revenue collections available to reduce emissions and mitigate cost impacts are much less than what ratepayers are paying for the RGGI program.  For all the talk of mitigating impacts to low- and middle-income consumers with RGGI proceeds these results show that regressive RGGI electric market prices likely exceed the benefits of those investments.

This is relevant to the NYISO and Outlook analyses because affordability must be a consideration.  I recommend that NYISO develop refined estimates of the electric market impacts to ratepayers caused by RGGI allowance prices, especially the potential for much higher prices due to market scarcity as the existing allowance bank declines.  I suspect that the models the NYISO use could track all the market costs.  Given the impact of these effects on consumer costs, I requested that NYISO report on the annual and peak market clearing price impacts of RGGI.

2026 Extreme Winter Weather

My comments on the Outlook addressed weather impacts.  My primary meteorological concern is reliability planning related to weather-dependent generating resources. I recently published a blog post that showed that last winter’s extreme weather proved that dispatchable emissions-free resources (DEFR) are necessary to achieve net-zero in New York.  The Winter 2025-2026 Cold Weather Operations presentation by the NYISO is an excellent summary of the conditions observed.

In 2023, Judith Curry and I prepared a white paper titled “Historical Weather and Climate Extremes for New York“.  We noted that there is substantial variability in seasonal temperatures and occurrence of temperature extremes on interannual, decadal, and multidecadal time scales. We also pointed out that the most recent 5-year period used in many NYISO planning analyses does not capture the most extreme temperature events that have been observed in the historical records. We also noted that the possible worst-case scenario could be a 15-day period from January 20 to February 3, 1961,

I recommend that this winter’s January 23–February 9, 2026 weather observations be included in Outlook analyses because the upper‑air pattern was similar to that of the 1961 event.  Including this winter’s event data will capture an extreme temperature event that is necessary to incorporate the impact of weather extremes as wind and solar resources increase.  For example, I considered  proposals to replace peaking units with renewables and storage for last winter’s cold snap. Using the liquid‑fuel generation during the event as a proxy for peaking units, I showed that oil‑fired units supplied roughly 2 million MWh over the episode while total renewable energy production was only 469,308 MWh. The scale of firm backup currently needed is much larger than what can be stored in batteries, meaning that oil-fired peaking units cannot be retired until DEFR backup is available. 

My recommendations stated that the Outlook should address timing for DEFR support.  Given that we do not yet know what DEFR resources will be commercially available before 2044, I believe that the Outlook should emphasize the importance of DEFR to the Climate Act’s Public Service Law 66‑P Renewable Energy Program.  That program mandates renewable resources which, in my view, cannot fully achieve reliability objectives without including DEFR.

Discussion

There is an affordability crisis in New York.  As of December 2024, over 1.3 million New York households were behind on their energy bills by sixty days or more, collectively owing more than $1.8 billion.  In response to the New York State Public Service Commission notice  soliciting comments regarding a petition for a hearing to suspend or temporarily modify the Renewable Energy Program, I demonstrated that the increase in the number of accounts in arrears from 2019 (before enactment of the CLCPA) to 2025 is statistically significantfor statewide totals and for four of the ten utilities.  In that light the unacknowledged RGGI electric market costs must be reconsidered. 

My analysis exposes fatal flaws in RGGI.  A billion dollars in added consumer costs due to an arbitrary accounting decision that gives most generators windfall profits can no longer be ignored.  Those costs are not part of the “dividend” benefits that only accrue when allowances are sold at auction.  The fact that the market costs far exceed the auction revenues means that RGGI is simply a regressive tax. 

Another unavoidable implication is now clear.  The presumption that a binding cap can ensure emission reductions is false.  RGGI emissions have been essentially constant since 2019 despite massive investments.  There should be no expectation that the factors causing emission reductions to stall will suddenly reverse so that emissions begin to match the allowance cap reduction trajectory.   The RGGI states must either modify the cap trajectory or accept that affected generating plants will stop producing power to comply with their rules.

Conclusion

I submitted comments on the NYISO Resource Outlook program because these recent events should be considered in long-range resource assessments.  In my opinion, the NYISO has avoided explicit policy recommendations for too long.  The potential that RGGI requirements will shut down power plants in less than seven years should spur a clear statement that the rule must be changed.  The longer there are no changes, the longer higher costs should be expected due to shrinking allowance availability.  The Outlook is an opportunity to hold policymakers accountable.

On April 29, 2026 the Regional Greenhouse Gas Initiative (RGGI) states announced that Virigina was rejoining.  The original intent of this post was to describe the potential impact of that development, but while doing research it became obvious that the bigger story is the impact of the cost adder for RGGI allowances on the electric market.  On May 8, the RGGI states issued a notice that they were monitoring the allowance market in response to a sharp increase in the secondary futures market price so I am not the only one concerned about this development.

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.

Background

RGGI is a market-based program to reduce greenhouse gas emissions from the power sector(Factsheet).   It has been a cooperative effort among Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont since 2008, with New Jersey rejoining in 2020 and Virginia scheduled to rejoin beginning July 1, 2026.  Pennsylvania recently decided not to join. 

According to the RGGI program description, the states issue CO2 allowances that are distributed almost entirely through regional auctions, and the proceeds are then reinvested in strategic energy and consumer programs.  Those investments include energy efficiency, clean and renewable energy, beneficial electrification, greenhouse gas abatement and climate adaptation, and direct bill assistance, with energy efficiency receiving the largest share. 

Virginia Rejoins RGGI
The RGGI Statement said that, with Governor Spanberger’s approval of Virginia’s regulation reinstating the state’s CO2 budget trading program, Virginia’s participation and compliance obligations will resume on July 1, 2026.  Virginia’s allowance budget for the second half of 2026 will be 11.48 million allowances, and the state will participate in the September 9 and December 2, 2026 auctions.  Virginia will also originate 1.148 million Cost Containment Reserve allowances for the remainder of 2026, and later this year the state will undertake regulatory action to align its program with the Third Program Review and the updated Model Rule by January 1, 2027. 

Cost Impact of Virginia Rejoining RGGI

RGGI allowance costs are driven by basic economic considerations.  When there is scarcity prices increase and when there is uncertainty about scarcity costs also go up.  The difference is that price increases associated with uncertainty can drop when more information is available.  Whereas it is possible that the RGGI plans for the emission cap are so aspirational that scarcity is baked in.  A Perplexity AI review of the Annual RGGI Market Monitor reports describes observed price spikes were associated with the following:

• A regime change in supply (cap adjustment, Cost Containment Reserve (CCR) exhaustion, bank recalculation) alters the scarcity narrative and raises uncertainty.
• That uncertainty interacts with short‑term shocks—Clean Power Plan expectations and nuclear retirements in 2015, cap/bank adjustments in 2021, CCR exhaustion plus an expanded derivatives market in 2024, and the 2025 program review, the Virginia state election, and winter demand expectations in late 2025.
• A growing options and futures market means those shocks are transmitted and sometimes amplified via hedging and speculative flows, which shows up explicitly as higher option‑implied volatility in the RGGI monitor reports.

The price of RGGI allowance futures recently rose sharply after the announcement that Virginia would rejoin RGGI.  There is no publicly available resource describing the price of allowances on the secondary market.  Instead, subscription-based trade news services determine the secondary allowance prices.  The Carbon Pulse article RGGI Market: Historic rally rages over 30% into new week as RGAs breach $40 description stated the following before the article contents were available only to subscribers:

Last week’s surge in RGGI Allowance (RGA) futures carried over into the new week as prices broke all-time highs above the $40 threshold, up more than 30% in the last three days, with traders telling Carbon Pulse it’s unclear where and when the current rally could reach a pinnacle.

RGGI Cost Impacts

Several NYISO market experts have pointed out to me that this is a serious issue that should be addressed.  RGGI costs have two effects on customer supply costs: the direct cost of the allowances themselves for each generating unit and the impact of the cost adder used by generating units in their bid prices.  After a long delay I finally have found time and agree that this needs to be discussed.

In a deregulated electric market such as that run by the New York Independent System Operator, power plants, load-serving entities, and other participants submit competing bids and offers to an auction that determines the least-cost set of resources needed to meet demand while respecting grid limits.  NYISO’s day-ahead energy market is a financially binding, security-constrained auction in which generators, loads, and other participants submit bids and offers for each hour of the following day.  NYISO then runs an optimization that selects the least-cost portfolio of resources from those bids that can reliably meet forecasted demand given transmission limits and unit constraints, and the resulting locational marginal prices are used for settlement. 

A useful way to picture the market is as a stack of generator offers, with the cheapest megawatts at the bottom and progressively more expensive plants piled on top until the stack is high enough to meet NYISO forecast load.  At that point, the most expensive marginal unit needed sets the clearing price for the zone.  If the marginal unit must add a CO2 allowance cost to its bid, then the clearing price rises accordingly, increasing the price paid to all accepted generators in that market interval.  Lower-emitting generators still incur their own allowance costs, but their revenues also increase because they are paid the higher clearing price, and non-emitting units receive the clearing-price increase as pure profit without any direct CO2 compliance cost. 

RGGI Cost Estimate

To calculate the best estimate of the cost of RGGI on the New York electric system, it would be necessary to obtain hourly emissions and operating data for all units participating in the NYISO market.  Unit-specific operating information is proprietary and not publicly available.  For a first-cut estimate, emission monitoring data for RGGI program units were downloaded from the EPA CAMPD database for 2025.  Those hourly data include CO2 emissions, heat input, and gross load, so estimates of heat rate and CO2 emission rate can be derived.  However, this database was not designed specifically for heat-rate analysis, and the hourly values necessarily rely on simplifying assumptions about fuel heat content for emissions-trading purposes.  Nonetheless, the data are indicative. 

Figure 1 plots 2025 annual operating time against annual heat rate for New York RGGI units.  It would be better to plot heat rate against capacity factor, but the EPA data do not include nameplate capacity in a form that can be readily matched to NYISO data.  Three clusters stand out: highly efficient gas-fired combined-cycle units with low CO2 rates (red circle), steam boilers in the middle of the distribution (purple circle), and older simple-cycle turbines with the highest heat rates and CO2 emission rates (dark yellow circle). 

Operating Time for NYS RGGI Units

To illustrate the effect of the RGGI cost adder, the estimates below use annual values as a proxy for the hourly impacts that would ideally be summed across the year.  In 2025, statewide gross energy from New York RGGI units totaled 67,094.6 GWh, those units emitted 32,037,339 tons of CO2, the average quarterly RGGI auction price was $22.09 per ton, and NYISO Gold Book Table III-2a reports total net New York energy of 132,182 GWh.

The direct cost of allowances alone can be estimated by multiplying annual emissions by the average auction price: 32,037,339 tons times $22.09 per ton, or about $707.7 million.  That simple estimate does not account for the effect of the NYISO market clearing-price adder that is passed through to ratepayers. 

Table 1 provides bounding estimates for that market effect.  The first section, “Cost of Allowances for Annual Emissions,” documents the direct allowance-cost numbers just described.  The Annual Total section lists the NYISO total net energy used in the scaling calculation.  The remaining scenarios use observed heat rates and observed CO2 emission rates derived from EPA data to estimate an allowance-cost adder in dollars per MWh, which is then multiplied by total NYISO energy to estimate the statewide annual cost impact. 

Table 1: 2025 New York State RGGI Unit Operating Characteristics &  Emissions, RGGI Allowance Cost, and Consumer Cost Impacts

Using average 2025 data for New York RGGI units, the “RGGI Average” scenario yields an estimated statewide cost impact of $1.39 billion, nearly double the direct cost of purchasing allowances alone. Using the heat input weighted input data, the statewide cost impact would be $2.26 billion.  If every fossil unit in New York were a modern state-of-the-art combined-cycle unit, represented here by the average of the Cricket Valley and Valley Energy Center units, the “Modern CCGT” scenario yields about $1.16 billion.  A representative steam-boiler scenario yields about $1.74 billion.  The worst-case “Old Combustion Turbine” scenario yields about $2.01 billion, although that result is not realistic because it would require an old combustion turbine to be marginal in every hour and every relevant zone. 

Discussion

RGGI allowance prices raise the marginal bid of emitting generators in NYISO, so the allowance “cost adder” lifts the market clearing price on essentially all electricity consumed in New York, causing total costs to ratepayers that can be two or more times higher than the direct allowance expenditures and creating a windfall for non‑emitting “free‑rider” units. In simplest terms assuming that the weighted average heat rate is the marginal heat rate (11,700 mmBtu/MWh), the weighted average emission rate (0.77 tons/MWh), the last auction RGGI closing price ($22), and apply that allowance adder to all delivered MWh (150 TWh) shows that RGGI raises retail bills on the order of $2.26 billion dollars per year at the allowance cost in late March.  The recent price spike doubled this cost increasing this impact of RGGI to $12.3 million a day.   The generators’ direct compliance costs are much smaller, with the difference accruing as bonus money to non‑emitters. It is not yet clear whether the recent spike in RGGI allowance futures will be the new normal or whether it is the result of today’s uncertainty about the impact of Virginia rejoining RGGI. 

RGGI allowance prices from 2009 to 2018 were generally below $5 per ton, but since then both prices and volatility have increased materially (Figure 2).  It is not yet clear whether the recent spike in RGGI allowance futures will be fully reflected in future auction prices.  Importantly, when generating units incorporate the RGGI cost into their market bids they use the current spot market price.  In other words, the impacts of this price spike are showing up in electric prices now.  When the net monthly bills go out if this trend continues there will be a noticeable increase in costs.

Figure 2: RGGI Quarterly Auction Allowance Clearing Prices

Only the NYISO has the proprietary hourly market and unit-commitment information needed to estimate the total consumer impact of the RGGI cost adder with confidence.  Even so, the bounding scenarios presented here indicate that the added cost to consumers is likely substantial and that a significant portion of that added cost appears as windfall revenue to lower-emitting and non-emitting generators. 

The theory that auction revenues support cost-effective consumer benefits typically considers only the direct cost of allowances.  Even if all the allowance auction proceeds were directly returned to customers this analysis shows that when the market-clearing-price effects of the RGGI allowance adder are included consumer impacts will be significant.

Conclusion

My market expert tutors pointed out that the RGGI carbon tax has been ignored for years.  The ultimate beauty of the program is that the costs of RGGI allowances are not visible on electric bills because the allowance costs are buried in the bid prices.  We are sure that the PSC would never allow any information about RGGI allowance costs to be included as information items on electric bills. Ultimately the best tax is a hidden tax.

This issue was reportedly a topic of conversation at NYISO during the early years of RGGI implementation.  Given that allowance prices are now an order of magnitude higher than they were for many years and could go higher still, it is time for NYISO to reconsider the windfall profits that non-emitting units are reaping on the backs of New York ratepayers. 

I submitted comments on the 2025 Operating Plan Amendment (“Amendment”) for the Regional Greenhouse Gas Initiative (RGGI).  This is the sixth time I have comments on Operating Plan amendments and this post summarizes my latest submittal.

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

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 recently decided not to join. 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.

NYSERDA Operating Plan

The New York State Energy Research & Development Authority (NYSERDA) designed and implemented a process to develop and annually update an Operating Plan which summarizes and describes the initiatives to be supported by RGGI auction proceeds.  The latest Draft RGGI Operating Plan Amendment explains that

 New York State uses RGGI proceeds to promote and implement programs for energy efficiency, renewable or non-carbon emitting technologies, and innovative carbon emissions abatement technologies with significant carbon reduction potential, in accordance with 21 NYCRR Part 507 and in compliance with the Climate Leadership and Community Protection Act (CLCPA).

This year, consistent with authorized RGGI uses, and to highlight the link between RGGI programmatic investments and core state priorities, we have organized our RGGI programmatic investments in terms of four themes, which are the following:

• Affordability: The programmatic investments under this theme focus on creating affordable, efficient, healthy, and comfortable homes and workplaces by deploying commercially available energy efficiency, building electrification, and renewable energy technologies.

• Energy abundance, diversity, and reliability: The programmatic investments under this theme focus on understanding and building out diverse energy options, including responsible renewable generation and storage, as well as modernizing energy system infrastructure, planning, and markets.

• Energy innovation and economic development: The programmatic investments under this theme focus on supporting economic growth and competitiveness, including enabling job, tax revenue, and supply chain growth; stimulating entrepreneurship and company growth in New York; and expanding public-private partnerships and investments.

• Thriving communities and environments: The programmatic investments under this theme focus on helping New Yorkers equitably participate and share in the benefits of the clean energy future; ensuring the energy transition provides meaningful benefits to local communities and disadvantaged communities; and improving climate resiliency and adaptation and public and environmental health.

Investment Priorities and RGGI Compliance

As far as I can tell I have submitted comments on six amendments to the Operating Plan.  Given my decades-long emission and allowance reporting responsibilities in the electric sector, it is not surprising that the primary concern in all my comments has been related to compliance obligations.  In my opinion, NYSERDA ignores the fact that RGGI is not just a pot of money to exploit but is at its core a pollution control program that includes compliance obligations for electric generating units in the program.   This year is particularly important because of the more stringent RGGI caps proposed in the 6 NYCRR Part 242 CO2 Budget Trading Program amendments that I discussed recently.

The compliance challenge is illustrated in Figure 1.  Relative to the three baseline years before RGGI started New York RGGI emission are down 33%.  The primary reason for the observed reduction is due to fuel switching from coal and oil to natural gas.  I believe that the fuel price differential for natural gas use was much greater than the added cost of RGGI allowances, so the main driver of the observed reductions was economic fuel switching.   Also note that this option is not available anymore.

Figure 1: New York State Emissions by Fuel Type

NYSERDA RGGI Funding Emission Savings

The estimated emission savings from historical NYSERDA investments are described in the Semi-Annual Status Report through December 2024.  The description states that:

This report is prepared pursuant to the State’s RGGI Investment Plan (2024 Operating Plan) and provides an update on the progress of programs through the quarter ending December 31, 2024. It contains an accounting of program spending; an estimate of program benefits; and a summary description of program activities, implementation, and evaluation. An amendment providing updated program descriptions and funding levels for the 2024 version of the Operating Plan was approved by NYSERDA’s Board in January 2025.

Table 1 is a copy of Table 1 in the latest full-year Semi-Annual Status Report.  It summarizes the effectiveness of the NYSERDA investments and lists expected cumulative portfolio benefits including emissions savings.

Table 1. Summary of Expected Cumulative Portfolio Benefits through December 31, 2024

Comparison of NYSERDA Cumulative Emissions Savings to Observed Emission Reductions

Table 2 presents the relevant data to compare the observed reductions and NYSERDA RGGI investment emission savings.  I list the last five years of data starting in 2019 when the emissions went up because of the closure of Indian Point.  Reductions from the 2006-2008 average baseline are listed.  The emissions savings listed are cumulative annual emissions.  If the RGGI proceeds were invested, then the total emissions would be higher by the amount of the savings.  The total cumulative annual emission savings through the end of 2023 is only 1,976,101 tons and that represents a reduction of 4.2% from the pre-RGGI baseline.  Emission reductions by fuel type clearly show that fuel switching is the primary cause of reductions.

Table 2: NY Electric Generating Unit Emissions, NYSERDA GHG Emission Savings from RGGI Investments, and Emissions by Fuel Type

New York RGGI Program Investment Reductions

Another finding that has been ignored or possibly covered up by NYSERDA is the poor emission reduction cost effectiveness of NYSERDA investments.  Table 3 lists data from Semi-Annual Status Report through December 2024 Table 2.  The report presents “expected quantifiable benefits related to carbon dioxide equivalent (CO2e) reductions, energy savings, and participant energy bill savings with expended and encumbered funds” but I only considered the CO2e reductions.  Note that the emission savings evaluated in the report include carbon dioxide, methane, and nitrous oxide that are not included in RGGI.  I did not use “lifetime” savings data because I am trying to compare the RGGI program benefits emission savings reductions to the RGGI compliance metric of an annual emission cap.  Lifetime reductions are clearly irrelevant.  The observed cost per ton of emissions savings is $583.

Table 3: RGGI Funding Status Report Table 2: Summary of Total Expected Cumulative Annual Program Benefits

Program Benefit Impacts on RGGI

I categorized programs relative to RGGI compliance obligation support based on the Semi-Annual Status Report through December 2024.  The table breaks down the program allocations and expected annualized CO2 savings for three categories: direct reductions to RGGI sources, indirect reductions, and those programs that will increase electric generating emissions. An example of a program that increases RGGI emissions is NYSERDA’s Clean Transportation Program that “has been pursuing five strategies to promote EV adoption by consumers and fleets across New York”.   The emission reductions claimed are from decreased internal combustion engine vehicles, so the reductions do not reflect reductions in RGGI electric generating units.  In addition, increased electricity for charging will require RGGI facilities to operate more thus increasing their emissions.

The results in the Funding Status reports summarized in Table 4 show that since the start of the program NYSERDA has allocated $101.6 million to programs that directly reduce utility emissions achieving emission savings of 202,422 tons, $1,007.6 million for programs that indirectly reduce utility emissions savings by 1,634,000 tons, and $178.5 million for programs that will increase utility emissions by 395,152 tons.  When emissions savings from non-RGGI sources are removed, total savings are 1,827,575 tons instead of 2,221,757.

Table 4: Summary of Expected Cumulative Annualized Program Benefits through 31 December 2024 for Programs that Directly, Indirectly, or Do Not Affect RGGI CO2 Emissions

Reduction Potentials

I evaluated the potential effectiveness of the proposed funding allocations relative to RGGI compliance support.  I reviewed each proposed program and classified each program into six categories of potential RGGI source emission reductions.  The first three categories covered programs that directly, indirectly or could potentially decrease RGGI-affected source emissions.  I also included a category for programs that will add load that could potentially increase RGGI source emissions such as programs to incentivize electrification.  The two other categories considered programs that do not affect emissions and administrative costs respectively.

The results are in Table 5.  The first three categories cover programs that directly, indirectly, or could potentially decrease RGGI-affected source emissions and account for 53% of investments which is up sharply from the 2025 Amendment which only allotted 31% of the investments. This positive development occurred because Empower+ funding doubled and the Retrofit Challenges Programs funding increased sharply.  Programs that will add load that could potentially increase RGGI source emissions and whose emissions savings are unrelated to the electric sector total 20% of the investments.  Programs that do not affect emissions are funded with 18% of the proceeds and administrative costs total another 9%.  The increased preference for funding that could reduce RGGI emissions is a good development.  On the other hand, Administration costs are 8.8% of the total and programs that have nothing to do with emissions total 18%.  In my opinion, those are programs that should be funded from other sources.

Table 5: Potential for RGGI Reductions for Funding Allocations for 2025 Operating Plan Amendments

RGGI Compliance Summary

Figure 1 shows that no further fuel switching emission reductions are available.  Affected sources have no remaining options to comply with RGGI mandates other than limiting operations.  Future emission reductions are only possible if zero-emission resources displace the generation of RGGI-affected sources.  However, there is a complicating factor that makes emphasis on reducing RGGI-affected emissions more important.  The New York State Department of Environmental Conservation (DEC) recently announced revisions to 6 NYCRR Part 242 – CO2 Budget Trading Program the regulation that sets the New York RGGI allowance cap. 

Comparison of the revised cap starting in 2027 with the New York State Energy Plan shows that in 2029 projected emissions are double the RGGI cap.  Table 10 lists projections starting in 2027 that range from 49.3 to 40.3 MMT.  The 2023 observed emissions from RGGI sources was 28.7 MMT.  Table 6 lists the proposed RGGI cap or limit on tons of CO2 permitted.  There is a big difference between the Pathways Analysis projection and the RGGI cap.  There are some mitigating factors because of the Climate Act accounting methodology, but I believe that the Pathways Analysis emissions are well more than the cap.

Table 6: Comparison of RGGI Proposed Part 242 Cap and State Energy Plan Pathways Analysis Electric Power Scenario Projections

Discussion

My primary concern is that RGGI is an electric sector emissions reduction program.  I have shown that the observed electric sector emission trends indicate that the observed reductions occurred because of fuel switching from coal and oil to natural gas and that there are no more fuel switching opportunities. Therefore, programs that materially decrease electric sector emissions directly or indirectly through energy use reductions should be a priority because affected sources have no other compliance options. There are programs in the amendment that do not meet these criteria.  It is only appropriate to fund the non-priority programs if sufficient funding has been allocated to make the emission reductions necessary to meet RGGI compliance mandates.  

These results should be used to determine funding priorities.  There are significant differences in the expected emission reductions for different programs and that should also be considered when allocating revenues.  While the fraction of funding allocations that could potentially decrease RGGI source emissions has gone up I think that more emphasis is needed to assure compliance and avert compliance problems.

Conclusion

NYSERDA has treated RGGI allowance auction revenues as a convenient slush fund totaling 18% of total funding for whatever politically connected program needs money.  As a result, investments that reduce emissions and support those most impacted by increased costs received less funding.

I have regularly prepared updates on the Regional Greenhouse Gas Initiative (RGGI) annual Investments of Proceeds report.  Last year I combined the update with lessons to be learned concerning the relative emission reduction effectiveness of the different investments categories used in the reports.  This post updates my past summaries and summarizes the implications relative to the recently completed Third Program Review.

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.

Despite claims about the success of RGGI, the reality is that the only thing it is good at is raising money.  Suggestions that RGGI has been responsible for the observed reductions in CO2 emissions over the life of the program ignore the importance of fuel switching and the poor performance of RGGI auction proceed investments in reducing emissions.  I document these  observations below.

Proceeds Investment Report

The 2023 investment proceeds report was released on July 16, 2025.  According to the press release: “In 2023, $852 million in RGGI proceeds were invested in programs including energy efficiency, clean and renewable energy, beneficial electrification, greenhouse gas abatement, and direct bill assistance. Over their lifetime, these 2023 investments are projected to provide participating households and businesses with $2.7 billion in energy bill savings and avoid the emission of 7.8 million short tons of CO2.”  The report breaks down the investments into major categories.  The 2023 investment report explains:

Energy efficiency makes up 64% of 2023 RGGI investments and 56% of cumulative investments. Programs funded by these investments in 2023 are expected to return about $1.9 billion in lifetime energy bill savings to more than 181,000 participating households and 1,083 businesses in the region and avoid the release of 5.3 million short tons of CO2.

Clean and renewable energy makes up 6% of 2023 RGGI investments and 12% of cumulative investments. RGGI investments in these technologies in 2023 are expected to return over $647 million in lifetime energy bill savings and avoid the release of more than 1.9 million short tons of CO2.

Beneficial electrification makes up 9% of 2023 RGGI investments 4% of cumulative investments. RGGI investments in beneficial electrification in 2023 are expected to avoid the release of 436,000 short tons of CO2 and return over $94 million in lifetime savings.

Greenhouse gas abatement and climate change adaptation makes up 2% of 2023 RGGI investments and 7% of cumulative investments. RGGI investments in greenhouse gas (GHG) abatement and climate change adaptation (CCA) in 2023 are expected to avoid the release of more than 49,000 short tons of CO2.

Direct bill assistance makes up 15% of 2023 RGGI investments and 15% of cumulative investments. Direct bill assistance programs funded through RGGI in 2023 have returned over $128 million in credits or assistance to consumers.

This official story about the virtues of RGGI investments does not square with reality.

Emission Reductions

All my summaries of the RGGI Investment Proceeds reports have found the same results.  Since the beginning of the RGGI program, RGGI funded control programs have been responsible for a small fraction of the observed reductions – only 7.6% in 2023 (Table 1).  The primary reason for the observed reductions has been fuel switching away from coal and oil to natural gas.  Importantly, the availability of potential fuel switching in the RGGI fleet of electric generating units is running out.  Consequently, future reductions will have to rely on the deployment of zero-emission generating resources and load reductions which makes cost-effective emission investments important. 

Table 1: State-Level CO2 Emissions for Nine RGGI States 2009 to 2024

The importance of cost-effective investments for emission reductions is unacknowledged.  I calculate cost effectiveness by dividing the RGGI total investments divided by the estimated avoided CO2 emissions. In 2022 the CO2 emission reduction efficiency was $949 per ton of CO2 reduced but in 2023 the cost per ton reduced increased to $1,854.  Because there is no obvious change in investment strategies, I think the differences are due to changes in the calculation methodology.  This cannot be confirmed because there is insufficient documentation.

Table 2: Accumulated Annual RGGI Proceeds, Avoided CO2, and Cost Efficiency

Emission Reduction Costs

RGGI is supposed to be an emissions reduction program.  On July 3, 2025, RGGI announced the results of the Third Program Review that modified the requirements for future reductions.  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.  The RGGI summary  of the revisions states that the revised mandated reductions will “decline by an average of 8,538,789 tons per year, which is approximately 10.5% of the 2025 budget” from 2027 to 2033.

Table 3 lists the cost per ton of CO2 removed of the RGGI investments from 2015 to 2023, the cost to reduce 8,538,789 tons per year using their observed costs, and the RGGI proceeds for each year.  In 2023 the Third Program Review mandated annual emission reduction multiplied by the cost per ton ($1,854) totals $15.8 billion but the RGGI proceeds were only $0.85 billion.  Even using the cost over the entire period of $849 per ton, it would cost $7.25 billion to make the reductions mandated.  This is still far short of the proceeds available.

Table 3: Annual RGGI Cost Efficiency, Cost to Meet 2027 RGGI Annual Reduction, and Annual Proceeds

Investment of Proceeds Summary

The 2023 investment proceeds report breaks down the investments into major categories. I added the annual values for each category to provide the following summary (Table 4).  Note that the overall cost effectiveness is $1,174 per ton avoided.  Clearly the proceed investment strategy is not emphasizing emission reduction effectiveness.  It is encouraging that savings of $924 million are claimed but total investments are $2,251 million.   In my opinion, these numbers are inconsistent with claims that RGGI is successful.

Table 4: RGGI Proceeds Report Investment Category Annual Totals

Cost Effectiveness Implications

One of my big concerns about any cost on carbon emissions is that it is a regressive stealth tax on energy.  There is a tradeoff between trying to minimize those impacts and reducing emissions.  In the last six years $371 million or 16% of the RGGI auction proceeds went to direct bill assistance, which is good but that means that much less was available to reduce emissions (Table 5).  Throw in the $132 million over the last 6 years for administration that means that 23% of the RGGI auction proceeds were not used to reduce emissions.

Table 5: Summary of Recent RGGI Categorial Investments and Avoided Emissions Over the Last 6 Years

This article compares the cost effectiveness of emission reductions for the following investment categories: energy efficiency, clean and renewable energy, beneficial electrification, greenhouse gas abatement and climate change adaptation (Table 3).  For the investment categories that provided emission reductions Clean and Renewable Energy was the most effective way to reduce emissions.  As far as I can tell this category provides the most funding for projects that directly reduce emissions.  It is encouraging that the energy efficiency is right around the average over all categories.  This means that energy efficiency programs targeted at low- and middle-income households most affected by this energy tax will provide effective emission reductions but only at a cost near $1,000 per ton. 

On the other hand, programs promoting the research and development of GHG abatement and climate change adaptation are less effective at reducing emissions.  Perhaps a greater emphasis on programs promoting reduction of emissions in the power generation sector and advanced energy technologies and less emphasis on programs for the reduction of vehicle miles traveled, tree-planting projects designed to increase carbon sequestration, and climate adaptation and community preparedness initiatives would improve emission reduction efforts consistent with the emission reduction goal of RGGI.

The worst emission reduction programs are associated with beneficial electrification that are “designed to reduce fossil fuel consumption by implementing or facilitating fuel-switching to replace direct fossil fuel use with electric power.“  This category was added recently.  There are two ways to look at the high numbers.  On one hand, it could be that it recognizes that reductions of overall fossil fuel consumption require efforts across all sectors.  On the other hand, I think it inappropriately transfers costs to the electric sector that do not provide efficient emission reductions.

Discussion

As noted previously, since the beginning of the RGGI program RGGI funded control programs have been responsible for a small fraction of the observed reductions (e.g., only 7.6% in 2023).  The primary reason for the observed reductions has been fuel switching away from coal and oil to natural gas. There are limited opportunities to make further fuel switching changes.   Consequently, future reductions will have to rely on the deployment of zero-emission generating resources.  This means that compliance with the RGGI emission caps is out of the control of the affected generating units and that RGGI investments must fund much of the reductions needed.

New York’s Value of Carbon guidance estimates that the 2025 cost of carbon at a 2% discount rate is $133.75.  Per this guidance, when used for a damages-based approach to valuing greenhouse gas emissions, the value of carbon provides a monetary estimate of the impacts on society from activities that are a source of greenhouse gas emissions. The estimated emission reductions cost per ton removed exceeds that limit for every year and every investment category.  This suggests that the emission reduction costs exceed the societal benefits expected.

The ostensible purpose of RGGI is to reduce emissions.  In theory the auction proceeds would be invested to facilitate emission reduction programs but categorial investments do not reflect that as a priority.  The beneficial electrification category is the worst.  It illustrates the tendency for government funding priorities to shift away from the original priorities of the program.

The RGGI funding priorities do not reflect the necessary funding required to meet the annual reduction mandates in the recently approved Third Program Review modifications. Using the future mandated emission reduction and the observed 2023 reduction efficiency (8,538,789 tons multiplied by the cost per ton $1,854) totals $15.8 billion.  However, the RGGI proceeds in 2023 were only $0.85 billion.   These results show that RGGI investments will not provide the emission reductions mandated.  That leaves the question – where will the reductions come from?

Conclusion

These results support my conclusion that RGGI can only claim to raise money effectively.  Claims that RGGI is a successful emission reduction program are inconsistent with the following observations.  The investment costs exceed the expected societal benefits.  The amount raised falls far short of the funds necessary to reduce RGGI emissions in accordance with Third Program Review requirements.   Investment priorities are inconsistent with the emission reduction objectives.  Finally, emission reductions associated with RGGI investments only account for 7.6% of the observed reductions.

Someday, the shortcomings of the RGGI approach will result in serious problems. When the only compliance option available to generating plants is to reduce operations, then an artificial energy shortage will result. 

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 described other 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.