The 10 states participating in the Regional Greenhouse Gas Initiative (RGGI) have agreed to strengthen their emissions cap — a result of the program's much-anticipated third program review.
The states agreed to a number of changes to the program, including a more stringent emissions cap plan beginning in 2027 and running through 2037.
The cap will begin at 69.8mn short tons (st) in 2027, down by 7.8pc from the previous cap set for that year of roughly 75.7mn allowances. It will then decline by about 8.5mn st/yr — or about 10.5pc of the current 2025 budget of over 81.3mn st — through 2033. From 2034-2037, the emissions cap will decline by 2.4mn st/yr — or about 3pc of the 2025 budget. The cap will remain steady after 2037.
There will be no changes made to the existing bank of allowances which can continue to be used for compliance.
The new changes to RGGI also include a second cost containment reserve (CCR), a market mechanism that holds additional allowances that can be released during an auction if demand — and in turn, prices — becomes too high. Both CCRs will have nearly 11.75mn allowances, and that amount will not change in the 2027-2037 period.
The first CCR, dubbed "CCR tier 1", will have the same mechanism that is currently in place. The CCR tier 1 trigger price — the threshold at which the CCR will release additional allowances if prices increase too much — will begin at $19.50/st in 2027 and increase by 7pc/yr through 2037, remaining constant thereafter.
CCR tier 2 allowances will be released if demand is beyond the initial offering of allowances and if the price exceeds the tier 2 trigger price, which begins at $29.25/st in 2027 and increases by 7pc/year through 2037.
The emissions containment reserve (ECR), a market mechanism that withholds allowances if prices drop below a certain level, will be removed. Instead, the new changes incorporate a revised minimum reserve price — the lowest price at which allowances can be sold at — as a replacement. The new minimum reserve price and its subsequent annual changes matches that of the old ECR trigger price, starting at $9/st in 2027 and increasing by 7pc/yr through 2037.
The revised rule for RGGI also eliminates the generation of offsets from projects starting from 2027. But offsets generated before 2027 can still be used for compliance purposes.
The secondary RGGI market, which recently had had bullish sentiment among participants due to high power demand, fell shortly after the announcement of the program changes on the Intercontinental Exchange (ICE), with December 2025 contracts dropping to as low as $20.44/st in the afternoon. Argus last assessed December 2025 allowances at $23.50/st on Wednesday.
Market participants have viewed the latest updates in a bearish light, pointing towards the changes to the program's CCR mechanism as well as the lack of changes towards the existing bank of allowances.
The latest updates to RGGI could potentially be a temporary measure since member states intend to begin another program review in 2028, a year after these latest changes are set to be implemented. The next review will consider an emissions cap plan beyond 2037 and take into account factors like shifts in energy policy, clean energy deployment, programs to ensure energy affordability, and the pace of electricity load growth, member states said.
The latest program review, the third such review since the start of RGGI in 2008, was first announced in February 2021. But the review faced many delays, and the last update regarding the potential changes that could result from the review came in September 2024. As a result, the review, and the subsequent lack of updates, led to bearish sentiment in the market, weighing on prices.
The RGGI market has also had to contend with a number of other factors. Projected electricity demand is expected to surge due to the buildout of power-hungry data centers which has led to bullish expectations in the long term. In addition, high summer temperatures have spiked power demand in the short-term, resulting in increasing allowance prices in the secondary market.
Member states have also had to contend with surging electricity prices, leading lawmakers to balk at more ambitious climate policies.
But the election of President Donald Trump and his administration's agenda to roll back a number of environmental, climate, and clean energy policies have introduced uncertainty, and as a result, volatility into the RGGI markets. Trump's 8 April executive order which directs the Department of Justice to challenge state climate policies caused RGGI prices to plunge and subsequently fluctuate as uncertainty over the legal effects of the order on the program competed with more bullish factors.
In addition, the fate of Virginia and Pennsylvania's participation — both major CO2 emitters — remain in limbo as both states remain mired in legal challenges, adding uncertainty for participants. Pennsylvania's Supreme Court recently held a hearing where the judges appeared skeptical over the legality of regulation permitting the state's membership in RGGI.
