The Regional Greenhouse Gas Initiative (RGGI, pronounced "Reggie") is the first required program in the United States that uses market methods to reduce greenhouse gas emissions. RGGI is a partnership among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont, and Virginia. These states work together to set a limit on carbon dioxide (CO₂) emissions from power plants and then reduce those emissions over time. RGGI rules apply to fossil-fuel power plants that are 25 megawatts (MW) or larger in the 11-state region. North Carolina's participation in RGGI has been stopped by the state's budget for fiscal years 2023–25.
RGGI sets a regional limit on the total amount of CO₂ that power plants can release. It does this by issuing a limited number of tradable CO₂ allowances. Each allowance gives a power plant permission to emit one short ton of CO₂. Each state in RGGI has its own program for trading CO₂ allowances, which together create a regional market for these allowances.
More than 90 percent of allowances are given out through quarterly auctions. The money from these auctions is used by participating states to fund programs that help with energy and consumer needs. These programs have included improving energy efficiency, supporting clean and renewable energy, reducing greenhouse gas emissions, and helping people with energy bills.
The program began in 2005 when seven states signed an agreement to start RGGI. The states then created their own CO₂ budget trading programs based on the RGGI Model Rule. The first auction took place in September 2008, and the program officially started on January 1, 2009. The RGGI program is now in its fifth three-year compliance period, which began on January 1, 2021.
Track record and benefits
RGGI states have lowered their carbon emissions while their economies have grown. Since the RGGI program began, power sector carbon emissions in these states have dropped by more than 50%. Media have highlighted RGGI as an example showing that economic growth and pollution reduction can happen together. A report by the Congressional Research Service noted that experiences in RGGI may help lawmakers create effective national programs.
Many factors influence emissions trends, but a 2015 study found that RGGI played a major role in reducing emissions in nine states. Other factors studied included state Renewable Portfolio Standard (RPS) programs, economic changes, and natural gas prices.
Independent reports have examined RGGI’s economic effects. Two reports by the Analysis Group studied RGGI’s first and second three-year periods. They found that the first three years of RGGI created $1.6 billion in economic benefits and 16,000 job-years, while the second three years created $1.3 billion in benefits and 14,700 job-years. These numbers do not include benefits like improved public health or reduced climate change impacts.
A study by the Clean Air Task Force (CATF) looked at public health improvements from cleaner energy in RGGI states. It found that cleaner energy has saved hundreds of lives, prevented thousands of asthma attacks, and reduced medical costs by billions of dollars.
The RGGI market’s changes are influenced by lower emissions, too many carbon allowances, price limits, policy actions, and the 2015 Clean Power Plan. RGGI has faced challenges, such as an oversupplied market. This happened because coal was replaced by natural gas and the economy was weak when RGGI started. RGGI’s low price floor means there are no shortages of allowances. In carbon trading systems, allowances are shared to limit emissions and reduce pollution. These systems have worked well globally, helping countries set stronger climate goals and lower emissions.
RGGI states have seen economic growth, lower emissions, lower electricity prices, and less coal use. According to RGGI’s 2018 Electricity Monitoring report, carbon dioxide emissions dropped by 48.3% between 2006–2008 and 2016–2018. Coal electricity generation decreased since RGGI began, while natural gas and renewable energy increased. RGGI has also helped lower wholesale electricity prices through energy efficiency programs. These programs, along with other RGGI measures, contributed $1.4 billion in economic benefits in the region between 2015 and 2017.
RGGI caps
The RGGI CO₂ cap sets a limit on carbon dioxide emissions from the power sector in participating states. To address stored CO₂ allowances, the RGGI states made two temporary changes to the cap. From 2014 to 2020, the cap decreased by 2.5% each year, except in 2020 when New Jersey joined the program.
In 2017, the states agreed to reduce the regional cap further, aiming for a 30% decrease between 2020 and 2030. The new caps for the years 2021 through 2030 are as follows:
To help manage costs, the RGGI states created two systems: the Cost Containment Reserve (CCR) and the Emissions Containment Reserve (ECR). The CCR adds a fixed number of CO₂ allowances to the market only if prices reach $13.00 per allowance in 2021. The ECR reduces the number of allowances available if prices fall below $6.00 per allowance in 2021. These systems help keep the cost of reducing emissions fair and manageable.
Compliance
RGGI rules apply to power plants that burn fossil fuels and have a size of 25 megawatts or larger within the RGGI region. In 2021, there were 203 such facilities subject to these rules.
Under RGGI, these facilities must have permits equal to their carbon dioxide emissions during each three-year control period. A permit allows the release of one ton of carbon dioxide. The first control period began on January 1, 2009, and ended on December 31, 2011. The second control period started on January 1, 2012, and ended on December 31, 2014. The third control period began on January 1, 2015, and ended on December 31, 2017. The fourth control period started on January 1, 2018, and ended on December 31, 2020. The fifth control period began on January 1, 2021, and will end on December 31, 2023.
By April 2021, 97.5 percent of regulated power plants had met their requirements for the fourth control period.
Quarterly regional auctions
The first auction for RGGI CO₂ allowances before compliance took place in September 2008. These auctions happen every three months and use a method where all bids are sealed, and everyone pays the same price. Since 2008, the RGGI states have held 54 auctions, earning over $4.7 billion. Prices for allowances in these auctions have ranged from $1.86 to $13.
Anyone can join the RGGI CO₂ allowance auctions, as long as they meet rules, such as providing financial guarantees. Auction rules state that no group can buy more than 25% of the allowances offered in a single auction.
An independent monitor, Potomac Economics, watches the RGGI allowance market to ensure fair competition and build trust among participants and the public. The monitor has found no signs of unfair competition or major issues with the auction process, participation rules, or the secondary market for allowances.
Participants can also buy CO₂ allowances in other markets, such as the Intercontinental Exchange (ICE), or through direct deals. Potomac Economics releases reports every three months about the secondary market for RGGI allowances.
Investment of auction proceeds
The RGGI states have the choice of how to use money from RGGI auctions. They have used these funds to support many different programs, including energy efficiency, renewable energy, direct bill assistance, and efforts to reduce greenhouse gas emissions. These programs have helped more than 3.7 million homes and 17,800 businesses. These investments have helped participants save money on energy bills, created jobs, and reduced pollution. Between 2008 and 2014, programs supported by RGGI funds avoided using 2.4 TWh of electricity, 1.6 TWh (5.3 × 10^9 British thermal units) of fossil fuel, and released 1.7 × 10^6 short tons (1.5 × 10^6 tonnes) of carbon dioxide. Over their lifetime, these programs are expected to avoid using 20.6 TWh of electricity, 22.3 TWh (76.1 × 10^9 British thermal units) of fossil fuel, and releasing 15.4 × 10^6 short tons (1.40 × 10^7 tonnes) of carbon dioxide.
Energy efficiency programs use a large part of RGGI funds. All electricity users, not only those who make improvements, benefit from energy efficiency efforts. For example, investing in programs like weatherizing homes reduces the amount of electricity used. This lower demand for electricity can reduce the overall cost of electricity. This means lower costs for everyone, not just those who installed new, efficient windows.
Program review
The RGGI participating states have agreed to regular checks of their program to evaluate its achievements, effects, and structure. These states are currently conducting a 2021 Program Review, which includes detailed studies and public meetings with interested groups to gather feedback. The 2021 Review is expected to finish in early 2023.
The 2012 and 2016 RGGI Program Reviews, completed in 2013 and 2017, led to changes in the program. The 2012 Review caused a 45% decrease in the RGGI cap and introduced the CCR. These changes began in 2014. The 2016 Review created the ECR and reduced the RGGI cap by an additional 30% from 2020 to 2030. This review also included updates to the CCR, offset categories, and the minimum reserve price.
History
On December 20, 2005, seven governors from Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York, and Vermont signed an agreement to create a cap-and-trade program for power sector carbon dioxide (CO₂) emissions in the northeastern and mid-Atlantic region. This agreement laid the foundation for the Regional Greenhouse Gas Initiative (RGGI).
In 2006, the same seven states revised the agreement and released the first draft of a Model Rule to guide state-level regulations. In 2007, Massachusetts, Maryland, and Rhode Island joined the agreement. On December 31, 2008, the 10 states finalized the first Model Rule, setting individual limits for CO₂ emissions in the region.
RGGI’s first compliance period began on January 1, 2009. The first Model Rule served as the regulatory framework for each participating state until 2013. During this time, New Jersey left the agreement. Groups like Acadia Center reported that New Jersey’s departure caused lost revenue and encouraged the state to return. After Governor Phil Murphy was elected in 2017, New Jersey began steps to rejoin RGGI. New Jersey officially returned to RGGI through an executive order on January 29, 2018. Updated Model Rules were released in 2013 and 2017.
After Governor Ralph Northam was elected in Virginia in 2017, the state began steps to join RGGI. However, in 2019, the Republican-controlled legislature added a rule to the budget that blocked Virginia from joining. In 2020, the Democratic majority in both the House of Delegates and the Senate passed a law allowing Virginia to join. Virginia officially joined RGGI on January 1, 2021.
On January 15, 2022, Governor Glenn Youngkin signed Executive Order 9, asking for a review of Virginia’s membership in RGGI. Some experts say Governor Youngkin may not have the legal power to leave RGGI without approval from the legislature. On December 7, 2022, Virginia’s Air Pollution Control Board voted to start removing state rules about RGGI. A legislative oversight group later objected to this action. On June 7, 2023, the board finalized its decision and sent it to the Governor’s Office for publication.
On August 21, 2023, the Southern Environmental Law Center, along with other groups, filed a lawsuit in Fairfax Circuit Court, challenging the board’s authority to remove Virginia from RGGI. Governor Youngkin’s team claims they have the power to leave RGGI and calls the program a “regressive tax” that harms residents. The lawsuit argues that the board violated the state constitution and ignored the legislature’s power. It also states that Virginia’s power plant emissions dropped by 17% from 2020 to 2022, and over $328 million from carbon fees has been used to help low-income residents reduce energy use and over $295 million for flood control in coastal and Chesapeake Bay communities.
In October 2019, Pennsylvania Governor Tom Wolf issued an executive order directing the Department of Environmental Protection (DEP) to develop rules to join RGGI. In September 2020, Governor Wolf vetoed a bill that would have limited his ability to join RGGI without legislative approval. He believed the urgent need to address climate change was more important than other issues. His decision was also influenced by the economic and environmental benefits seen in other RGGI states.
On July 13, 2021, Pennsylvania’s Environmental Quality Board (EQB) approved the “CO₂ Budget Trading Program,” also known as RGGI. The General Counsel and Attorney General approved the rule in July and November 2021, respectively. The Independent Regulatory Review Commission (IRRC) also approved the rule in September 2021, saying it aligned with public interests.
Pennsylvania officially joined RGGI in April 2022 but cannot participate in carbon credit auctions due to two lawsuits questioning the legality of its involvement. Environmental groups estimate Pennsylvania has lost about $1.5 billion in revenue. On November 1, 2023, the Commonwealth Court ruled that Pennsylvania’s participation in RGGI was unconstitutional. Governor Josh Shapiro announced plans to appeal this decision on November 21, 2023.
In 2021, several bills opposing RGGI were introduced in Pennsylvania’s legislature. H.B. 637 and S.B. 119 aimed to block the DEP from taking actions related to carbon pricing programs without legislative approval. Both bills failed. A similar bill to the previously vetoed H.B. 2025 was reintroduced in 2022 and is still under review.
Under Pennsylvania law, after the IRRC approved the RGGI rule on September 1, 2021, a legislative committee had 14 days to propose a resolution to reject the rule. The Senate Environmental Resources and Energy Committee introduced a resolution to disapprove the rule on September 14, 2021. The Senate approved it on October 27, 2021, but the House did not act until December 15, 2021. Governor Wolf vetoed the resolution on January 10, 2022. The Senate tried to override the veto on April 4, 2022, but failed by one vote.
In 2021–2022, two bills were introduced to use RGGI auction funds for community needs. Senate Bill 15 and H.B. 1565 had Governor Wolf’s support but did not pass. No similar bills have been introduced in the 2023–2024 session.
On February 3, 2022, Patrick J. McDonnell, Secretary of the Department of Environmental Protection and Chair of the Environmental Quality Board, filed a lawsuit in the Commonwealth Court.