Net zero

Viewpoint: Power demand to bolster RGGI sentiment

Viewpoint: Power demand to bolster RGGI sentiment

Houston, 2 January (Argus) — Projected increases in electricity demand continue to fuel bullish sentiment in the Regional Greenhouse Gas Initiative (RGGI) CO2 allowance market, even with concerns over power affordability and federal threats to state climate policies. Electricity demand is the main factor driving bullish sentiment in the RGGI market due to more extreme temperatures in the region, state electrification initiatives, and the rapid buildout of power-hungry artificial intelligence (AI) data centers. But concerns over rising energy costs as well as federal hostility towards climate policy driven by President Donald Trump have cast a bearish shadow over the RGGI market. Allowance prices climbed in March after the first auction of the year cleared high enough to completely drain the cost-containment reserve (CCR) for 2025. But the market shed those gains soon afterwards, when Trump issued an executive order on 8 April targeting state and local climate laws that hinder US energy production. Fears that RGGI could be affected seeped into the market , and December 2025 allowances plummeted by 13.8pc to $18.54/short ton (st) on 9 April. But that legal uncertainty has largely taken a backseat to other concerns. Rising summer power demand quickly moved to the fore starting in May as expectations for higher emissions rose. Subsequent auctions cleared above the CCR trigger price of $17.03/st. The final auction of the year, which was held in December, cleared at a record high of $26.73/st. More recently, Democratic wins in the New Jersey and Virginia elections have boosted bullish sentiments in the RGGI market, which has been contending with strong compliance demand due to colder temperatures in the northeast US, spurring expectations for increased CO2 emissions. December 2025 allowances rose to a record high of $29.35/st on 1 December, surpassing California Carbon Allowance prices for the first time in RGGI's history. Driven by power demand Power demand has always driven the RGGI market, which seeks to lower power plant CO2 emissions. But the extent to which it has overtaken other regulatory and legal factors affecting the market is a relatively new trend. During the first few years of RGGI, demand and electricity consumption dropped due to economic reasons as well as other factors such as fuel switching, according to Justin Johnson, the RGGI representative for the International Emissions Trading Association. But in recent years, that trend has reversed. The production of electric vehicles (EV) and the installation of heat pumps rose markedly, while the proliferation of data centers has driven increased projections for electricity demand. Even recent declines in EV sales, resulting from a rollback in federal incentives, have not been enough to offset bullishness from anticipated data center power demand, which would require power plants to buy additional allowances, Johnson said. Governor-elect Abigail Spanberger's (D) victory in Virginia will likely allow for the state's reentry into RGGI, bolstering expectations for stronger future compliance demand. Virginia holds the largest data center market in the world, accounting for 35pc of the world's hyperscale data centers, according to the Virginia Economic Development Partnership. But exactly how that power demand affects allowance prices depends on how Virginia's return takes shape. Spanberger has promised to negotiate a deal that best benefits ratepayers, though she has not yet elaborated on what that would look like. The main point of negotiation when it rejoins RGGI will likely be Virginia's allowance allocation. While member states have traditionally pushed back against providing allocations for incoming states, Virginia could leverage its growing data center market to receive enough allowances to minimize the effects of its reentry on the RGGI market, Johnson said. In addition, the cost of power in the state can be minimized depending on the ability of data centers to limit their activities for a given amount of time, which would help lower costs for ratepayers, said Dallas Burtraw, a senior fellow at Resources for the Future, a non-profit. Don't stop me now Much of the political rhetoric in the US has shifted towards affordability, with concerns over rising energy costs causing many northeastern states to retreat from ambitious climate initiatives. As a result, criticism of RGGI has increased. Over the past year, there have been some efforts to leave RGGI from Republicans in states like Delaware , Maine , and New Jersey. The most successful of those efforts was in Pennsylvania, where governor Josh Shapiro (D) has sought to balance environmental concerns with the state's role as a major electricity exporter and natural gas producer. In addition, his administration has been dealing with a lawsuit against Pennsylvania's participation in RGGI, and Republican lawmakers have made repeated attempts to repeal the state's CO2 trading regulation. This culminated in Pennsylvania leaving RGGI through a budget deal in November. Still, most efforts against RGGI this year have been unsuccessful, and the current policy backslide is unlikely to affect the program in any meaningful way going forward. "I'd like to think that RGGI has been around long enough and is predictable and consistent enough that it won't be a huge impact," Johnson said. Burtraw added that there is "an increasing recognition that carbon pricing and affordability are not inconsistent and, in fact, can mutually reinforce each other". In July, member states agreed to set a more-stringent emissions cap that falls to just over 9mn st by 2037. Member states must proceed with their individual rulemakings to implement those changes before 2027. The agreed to changes " strengthened the market . So, I would take that as a signal [of] RGGI's reaffirmation of its interim and long-run goals," Burtraw said. In addition, the RGGI allowance market "actually creates degrees of freedom for policymakers because it could be a source of revenue to help them achieve other goals, and one of those goals is affordability", Burtraw said. By Ida Balakrishna Send comments and request more information at feedback@argusmedia.com Copyright © 2026. Argus Media group . All rights reserved.