Regional Greenhouse Gas Initiative


The Regional Greenhouse Gas Initiative is the first mandatory market based program in the United States to reduce greenhouse gas emissions. RGGI is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont, and Virginia to cap and reduce carbon dioxide emissions from the power sector. RGGI compliance obligations apply to fossil-fueled power plants 25MW and larger within the ten-state region.
RGGI establishes a regional cap on the amount of CO2 pollution that power plants can emit by issuing a limited number of tradable CO2 allowances. Each allowance represents an authorization for a regulated power plant to emit one short ton of CO2. Individual CO2 budget trading programs in each RGGI state together create a regional market for CO2 allowances.
The RGGI states distribute over 90 percent of allowances through quarterly auctions. These allowance auctions generate proceeds, which participating states are able to invest in strategic energy and consumer benefit programs. Programs funded through RGGI have included energy efficiency, clean and renewable energy, greenhouse gas abatement, and direct bill assistance.
An initial milestone program's development occurred in 2005, when seven states signed a Memorandum of Understanding announcing an agreement to implement RGGI. The RGGI states then established individual CO2 budget trading programs, based on the RGGI Model Rule. The first pre-compliance RGGI auction took place in September 2008, and the program became effective on January 1, 2009. The RGGI program is currently in its fourth three-year compliance period, which began January 1, 2018.

Track record and benefits

RGGI states have reduced their carbon emissions while still experiencing economic growth. Power sector carbon emissions in the RGGI states have declined by over 40% since 2005, while state economies have grown 8%. Media have reported on RGGI's success as a nationally relevant example showing that economic growth can coincide with pollution reductions. In a report on RGGI, the Congressional Research Service has also said that "experiences in RGGI may be instructive for policymakers seeking to craft a national program.
While multiple factors contribute to emissions trends, a 2015 peer-reviewed study found that RGGI has contributed significantly to the decline in emissions in the nine-state region. Alternate factors considered by the study included state Renewable Portfolio Standard programs, economic trends, and natural gas prices.
Other independent reports have analyzed RGGI's economic impact. For example, two reports by the Analysis Group studied RGGI's first and second three-year compliance periods. They found that the effects of RGGI's first three years are generating in $1.6 billion in net economic benefit and 16,000 job-years, and RGGI's second three years are generating $1.3 billion in net economic benefit and 14,700 job-years. These figures do not include co-benefits such as public health improvements or avoided climate change impacts.
A Clean Air Task Force study investigated public health benefits arising from the RGGI states' shift to cleaner power generation. The study found that the RGGI states transition to cleaner energy is saving hundreds of lives, preventing thousands of asthma attacks and reducing medical impacts and expenses by billions of dollars.

RGGI caps

The RGGI CO2 cap represents a regional budget for CO2 emissions from the power sector. The RGGI states include two interim adjustments to the RGGI cap to account for banked CO2 allowances. The cap declines 2.5 percent each year until 2020. Initial reductions were planned as follows:
The RGGI caps and adjusted caps for the years 2014-2020 are as follows:
YearBase Cap Adjusted cap
201491,000,00082,792,336
201588,725,00066,833,592
201686,506,87564,615,467
201784,344,20362.452,795
201882,235,59860,344,190
201980,179,70858,288,301
202078,175,21556,283,807

The RGGI states also established a Cost Containment Reserve of CO2 allowances that creates a fixed additional supply of CO2 allowances that are only available for sale if CO2 allowances prices exceed certain price levels - $4 in 2014, $6 in 2015, $8 in 2016, and $10 in 2017, rising by 2.5 percent each year thereafter. The CCR was 5 million CO2 allowances in 2014, and 10 million CO2 allowances each year thereafter.
In August 2017, RGGI states "agreed to reduce power plant emissions by another 30 percent from 2020 to 2030. The plan, which must be approved by each state...would lower these emissions by more than 65 percent since 2009, when the states began setting annual caps." The RGGI began negotiating this move before the 2016 presidential election. The new caps for 2021-2030 are as follows:
YearBase Cap
202175,147,784
202272,872,784
202370,597,784
202468,322,784
202566,047,784
202663,772,784
202761,497,784
202859,222,784
202956,947,784
203054,672,784

Compliance

RGGI compliance obligations apply to fossil-fueled power plants 25MW and larger within the RGGI region. As of 2016, there were 163 such covered sources.
Under RGGI, sources are required to possess CO2 allowances equal to their CO2 emissions over a three-year control period. A CO2 allowance represents a limited authorization to emit one ton of CO2. The first three-year control period took effect on January 1, 2009 and extended through December 31, 2011. The second three-year control period took effect on January 1, 2012 and extended through December 31, 2014. The third three-year period took effect on January 1, 2015 and extends through December 31, 2017.
As of June 2015, 96 percent of regulated power plants had met their compliance obligations for the second control period.

Quarterly regional auctions

The first pre-compliance auction of RGGI CO2 allowances took place in September 2008. Regional auctions are held on a quarterly basis and are conducted using a sealed-bid, uniform price format. Since 2008, the RGGI states have held 31 auctions generating over $2.4 billion in proceeds. Auction clearing prices have ranged from $1.86 to $7.50.
Any party can participate in the RGGI CO2 allowance auctions, provided they meet qualification requirements, including provision of financial security. Auction rules limit the number of CO2 allowances that associated entities may purchase in a single auction to 25 percent of the CO2 allowances offered for sale in that auction.
The RGGI auctions are monitored by an independent market monitor, Potomac Economics. Potomac Economics monitors the RGGI allowance market in order to protect and foster competition, as well as to increase the confidence of participants and the public in the allowance market. The independent market monitor has found no evidence of anti-competitive conduct, and no material concerns regarding the auction process, barriers to participation in the auctions, competitiveness of the auction results, or the competitiveness of the secondary market for RGGI CO2 allowances.
Market participants can also obtain CO2 allowances in secondary markets, such as the Intercontinental Exchange, or in over-the-counter transactions. The independent market monitor provides quarterly reports on the secondary market for RGGI allowances.

Investment of auction proceeds

The RGGI states have discretion over how they invest RGGI auction proceeds. They have reinvested proceeds, generated by RGGI auctions in a wide variety of programs. Programs funded through RGGI investment in energy efficiency, renewable energy, direct bill assistance, and greenhouse gas abatement have benefited more than 3.7 million participating households and 17,800 participating businesses. These investments have saved participants money on their energy bills, created jobs, and reduced pollution. In the period 2008 to 2014, programs funded by RGGI investments avoided the use of 2.4 TWh of electricity, of fossil fuel, and the release of of carbon dioxide. Over their lifetime, programs funded by RGGI investments estimate to avoid the use of 20.6 TWh of electricity, of fossil fuel, and the release of of carbon dioxide.
Energy efficiency represents a large portion of RGGI investments. Ultimately, all electricity consumers, not only those who make upgrades, benefit from energy efficiency programs. For example, investing in efficiency programs - such as weatherizing houses - reduces the amount of electricity used. The decrease in electricity demand actually reduces the overall price of electricity. That means the costs go down for everyone, not just someone who installed new, efficient windows.

Program review

The RGGI participating states have committed to comprehensive, periodic program review to consider program successes, impacts, and design elements. The RGGI states are currently undergoing a 2016 Program Review, which includes regularly scheduled public stakeholder meetings.
The previous RGGI Program Review took place in 2012, and resulted in several updates to the program. These changes included a 45 percent reduction in the RGGI cap, and the introduction of the Cost Containment Reserve. The CCR and the reduced cap took effect in 2014.

History

In 2003, governors from Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont began discussions to develop a regional cap-and-trade program addressing carbon dioxide emissions from power plants.
On December 20, 2005, seven of those states announced an agreement to implement the Regional Greenhouse Gas Initiative, as outlined in a Memorandum of Understanding signed by the Governors of Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York, and Vermont. The MOU, as amended, provides the outlines of RGGI, including the framework for a Model Rule.
In August 2006, the original seven MOU signatory states published a Model Rule, which provided a regulatory framework for the development of individual state regulatory and/or statutory proposals. The model set of regulations detailed the proposed program, as outlined in the MOU.
In early 2007, Massachusetts and Rhode Island, which had participated in the early development of RGGI, signed the MOU, as did Maryland later that year.
Through statuses or regulations based on the RGGI Model Rule, each state established individual CO2 Budget Trading Programs. Together, these composed a regional cap and market for allowances. Each state's CO2 Budget Trading Programs limits emissions of CO2 from electric power plants, issues CO2 allowances, and establishes participation in regional CO2 allowance auctions.
The first compliance period for each state's linked CO2 Budget Trading Program began January 1, 2009.
On November 29, 2011, New Jersey withdrew from the MOU, effective January 1, 2012. Groups such as Acadia Center have since reported on lost revenue resulting from New Jersey's departure, and argued for renewed participation. After the election of governor Phil Murphy in 2017, New Jersey began to make preliminary moves to rejoin RGGI. New Jersey reentered the RGGI under an executive order on January 29, 2018.
After the 2017 election of Governor Ralph Northam in Virginia, the state began to make preliminary moves to join RGGI. However, the move was stopped in 2019 when the Republican-controlled state legislature wrote a provision in the budget bill prohibiting the state from joining RGGI. The move to join RGGI was re-introduced as part of the 2020 General Assembly. With a democratic majority in both the House of Delegates and the General Assembly, the measure passed and was signed into law. Virginia will effectively join RGGI on January 1, 2021, pending the lifting of state budgetary restrictions set to expire on July 1, 2020.
In October 2019, Pennsylvania Governor Tom Wolf ordered his administration to start working on regulations to bring Pennsylvania into the RGGI. The Governor's administration plans to write regulations for the cap-and-trade program under its existing authority to regulate air pollution, although the process would eventually require approval from the state legislature. The earliest Pennsylvania could reasonably join RGGI and see the program take effect is 2021.