As the U.S. federal government and most states seek to reduce emissions of carbon dioxide and other greenhouse gases in an effort to address climate change, the price of carbon emission allowances is rising in the Regional Greenhouse Gas Initiative program, the nation's oldest multistate mandatory carbon allowance market for electric generators.
The Regional Greenhouse Gas Initiative, or RGGI, was the first mandatory market-based program adopted in the United States requiring reductions in greenhouse gas emissions from the electric power sector. RGGI was founded in 2007, with Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont as the original member states. New Jersey withdrew in 2012 but rejoined in 2020, and Virginia joined in January 2021.
RGGI states agree on annual caps on total regional carbon dioxide emissions from covered power plants, with emission allowances available to generators through formal auctions and secondary markets. Fossil-fueled power plants 25MW or larger must generally purchase and hold one allowance for each short ton of CO2 emitted during the three-year control period. States generally use the proceeds of carbon allowance auctions to fund ratepayer benefits and energy efficiency programs.
RGGI.org presents full historic auction data on its website in tabular format. According to the U.S. Energy Information Administration, the auction held on March 3, 2021 "resulted in a clearing price of $7.60 per short ton of carbon dioxide (CO2), surpassing the previous high price of $7.50 per short ton reached in December 2015."
 |
| Source: U.S. Energy Information Administration |
The cost of obtaining RGGI allowances falls directly on covered fossil-fueled generators. When RGGI allowances prices rise, so too does the cost of producing electricity from covered generators. RGGI allowance prices thus affect power plant economics, including the degree to which wholesale electricity market operators instruct fossil-fueled plants to run. Increased carbon prices tip the scales in favor of generation resources with lower carbon intensity, such as natural gas compared to coal and oil, or renewables or nuclear plants. At the same time, as long as any RGGI-covered generators are needed, the ultimate financial burden of RGGI compliance falls on electricity consumers who pay a price for power which includes these generators' cost of compliance.
