The 11 members of the Regional Greenhouse Gas Initiative (RGGI) cap-and-trade program in the eastern US may have to shuffle around their membership cards next year, as some states plan to join while others look to exit the program.
Pennsylvania governor Tom Wolf's (D) appears poised to succeed in his plan to have his state join RGGI next year, despite repeated challenges by mostly Republican lawmakers over the last two years. But Pennsylvania may not join in time to participate in the program first quarterly allowance auction of 2022.
The Department of Environmental Protection's (DEP) regulations initially called for setting an initial CO2 cap for the state's power plants of 78mn short tons for next year, tapering off to about 58mn st in 2030, a 25pc reduction from 2022.
But the 78mn st cap would only kick in if the state begins participation on 1 January. The Republican controlled legislature has passed a resolution of disapproval that would block Pennsylvania's entry into RGGI. Wolf has signaled he intends to veto the measure, but the resolution is still pending. That means the state's entry into RGGI almost certainly will be delayed.
DEP's proposal included a breakdown of the state's CO2 cap by quarters in anticipation of a later program start. Therefore, if the state is cleared to enter the program before 1 April, the program's cap would begin at nearly 58mn st instead of the original 78mn st.
With allowance prices hitting program highs recently, that could mean that Pennsylvania loses out on more than $200mn from the first auction slated for 9 March.
Recent RGGI entrant Virginia could soon leave the program after only a year of participation, if governor-elect Glenn Youngkin (R) moves forward with his pledge to exit RGGI via executive action.
However, since the state's participation is tied to the Virginia Clean Economy Act, legislation passed in 2020, it is unclear how Youngkin's proposed executive action could pull the state out of the program. Amending the law would be difficult. For now, Democrats hold a narrow majority in the Senate and will not hold elections for another two years.
Virginia's withdrawal would significantly reduce the size of the program. The state accounted for 23pc of the overall RGGI 119.8mn st allowance budget in 2021.
To the south, North Carolina's Department of Environmental Quality is expected to kick off a rulemaking in 2022 that would set the framework for joining the program.
A proposal filed by the Southern Environmental Law Center called for an initial CO2 cap of nearly 38.7mn st in 2022, dropping to 24.2mn st by 2030. However, the proponents of the rule have conceded that the state may not be able to move fast enough to join RGGI next year.
As the states mull their membership in RGGI, existing participants are conducting their third program review and are facing calls from environmental groups to do more to consider more vulnerable communities in the process.
The review is expected to address issues including program design, technical improvements, and post-2030 CO2 caps.
Stakeholders have called for a higher cost-containment reserve (CCR) trigger price, a price ceiling that in theory would help quell demand for allowances, along with making the CCR allowances part of the program's overall CO2 cap.
The CCR allowances are currently separate from the cap allowances and made available if an auction's interim clearing price exceeds a certain price level, which was set this year at $13/st. Argus assessed RGGI allowances for December 2021 delivery at $13.70/st on 22 December.
If the secondary market price continues to rise, next year's CCR price — set at $13.91/t -- might more easily be triggered given the recent influx of new financial players in the market which have helped drive up prices.
