The Regional Greenhouse Gas Initiative (RGGI) is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania (currently barred from active participation in the program due to ongoing litigation), Rhode Island, and Vermont to cap and reduce power sector CO2 emissions. With its initial auction held in September 2008, RGGI became the first market-based, mandatory cap-and-trade regional initiative in the United States.

Heading into 2025, key policy and programmatic developments continue to unfold involving RGGI. Ongoing litigation remains a barrier for Virginia and Pennsylvania to participate in the program. Meanwhile, RGGI’s Third Program Review could lead to important design changes and updates to the Model Rule, which acts as a template for each state to shape its own CO2 budget trading program.

Door Cracked Open for Virginia to Rejoin RGGI

Virginia’s participation in RGGI started in 2020 when the Virginia General Assembly passed the Clean Energy and Community Flood Preparedness Act, which allowed full participation. Virginia had been active in five RGGI auctions from 2021 until December 2023.

Efforts to withdraw Virginia from RGGI started in 2022 when Governor Glenn Youngkin (R) issued Executive Order 9. This order directed the Virginia Department of Environmental Quality (DEQ) to reevaluate the impact of participation in RGGI. In response, DEQ sent the report titled Virginia Carbon Trading Rule and Regional Greenhouse Gas Initiative Participation – Costs and Benefits on March 11, 2022, which provided the following conclusions:

• “Because of the captive nature of their ratepayers, the ability for power-generators to fully pass on costs to consumers, and the fact that the Code of Virginia dedicates RGGI proceeds to grants programs, participation in RGGI is, in effect, a direct carbon tax on all households and businesses.
• RGGI fails to achieve its goal as a carbon ’ system because it lacks any incentive for power generators to actually reduce carbon-intensive gas emissions.
• Carbon emissions rates have been reduced in Virginia by over 50% in the past 10 years, prior to the Commonwealth’s participation in RGGI.”

Following this report, the Virginia Air Pollution Control Board came to a decision to repeal Virginia’s participation in RGGI in a 4-3 vote in June 2023. Of the Board’s seven members, Youngkin had appointed four. This decision was challenged two months later in the Fairfax Circuit Court by the Southern Environmental Law Center which filed a petition on behalf of four clients: the Association of Energy Conservation Professionals (AECP), Virginia Interfaith Power and Light, Appalachian Voices, and Faith Alliance for Climate Solutions. In November 2023, the Fairfax Circuit Court dismissed three clients and transferred the case to Floyd County, where AECP is headquartered.

Most recently on November 18, 2024, the Floyd County Circuit Court ruled that the action by Governor Youngkin’s Administration to withdraw Virginia from RGGI was “unlawful and without effect.” In its ruling the court found that the “Petitioner does in fact have standing to bring this suit, and, the putative repeal of the RGGI Regulation was beyond the statutory authority of the Respondents, and therefore unlawful and without effect.”

Rejoining RGGI would require an order that officially repeals the regulation that withdrew Virginia from RGGI and reinstate the previous regulation which required participation. The state’s DEQ would then need to initiate action to resume participation. Notably, Youngkin has implied his intention to appeal the decision in response to the court ruling.

While it is unlikely that Virginia will begin participation during the remainder of Youngkin’s current term, efforts to do so could be expedited under a democratic administration resulting from the upcoming 2025 gubernatorial election on November 4. It is important to note that Youngkin will be ineligible to run for re-election as the Constitution of Virginia prohibits the state’s governors from serving consecutive.

Pennsylvania’s RGGI Participation in Limbo

In 2019, Governor Tom Wolf (D) initiated Pennsylvania’s participation in RGGI through Executive Order 2019-07. This action was followed by the Pennsylvania Department of Environmental Protection’s (DEP) Environmental Quality Board publishing regulation which set the state’s participation to begin on July 1, 2022.

In response to the Administration’s regulation, the Commonwealth Court of Pennsylvania issued two   enjoining the Pennsylvania DEP from implementation—completely halting the state’s participation in RGGI. As a result, RGGI Inc. issued an amended auction notice in August 2022 which stated that Pennsylvania would be removing all its allowances offered for sale in the CO2 Allowance Auction 57 held on September 7, 2022, as every state contributes a designated share of allowances for sale in each auction. Pennsylvania has yet to participate in any RGGI auctions due to this ongoing litigation.

More recently, on November 1, 2023, the Commonwealth Court of Pennsylvania ruled that RGGI participation violates the state constitution. The court concluded that the regulation did not create a “fee” but rather a “tax” within the exclusive authority of the Pennsylvania General Assembly. On November 21, 2023, the Administration of Governor Josh Shapiro (D) appealed this decision to the Pennsylvania Supreme Court. The Court is now considering written arguments but has not yet posted a schedule for oral arguments.

The Pennsylvania Senate has also been recently active in regard to the state’s participation in RGGI. On September 17, 2024, the Republican-controlled Senate approved Senate Bill 1058, which repeals Pennsylvania’s participation in RGGI. However, the bill did not move in the House of Representatives, where Democrats hold the majority. As a result of the election in November, the Pennsylvania General Assembly will continue to be divided, with Republicans maintaining control of the Senate and Democrats in the House. It is possible that another bill to repeal RGGI participation could be reintroduced in future legislative sessions.

As an alternative to RGGI, Governor Josh Shapiro proposed in March 2024 the Pennsylvania Climate Emissions Reduction Act (PACER) to establish a Pennsylvania-specific cap-and-invest program that allows Pennsylvania to determine its own cap on carbon and invest directly. The latest action reported on PACER is the recommendation of House Bill 2275 and Senate Bill 1191, to the Pennsylvania House Consumer Protection, Technology and Utilities Committee, and the Senate’s Environmental Resources and Energy Committee, respectively. PACER could be revisited in future legislative sessions.

The Way Forward: RGGI Program Review Underway

The RGGI states are currently conducting a Program Review to examine the results and design of their CO2 budget trading programs, and to consider updates to the Model Rule and their individual state programs. The RGGI states completed the First Program Review in February 2013 and completed the Second Program Review in December 2017, resulting in the 2017 Model Rule.

In September 2021, the RGGI states initiated a Third Program Review to consider further updates to their programs. To support the Third Program Review, the states aim to conduct technical analysis and consider key design elements.

In September 2024, RGGI released a Program Review Update and asked for public comments through October 23, 2024. Of the many responses, some of the key entities that submitted comments include: International Emissions Trading Association, Constellation, Environmental Defense Fund, RGGI Associates Coalition. Suggestions found within these comments include increasing RGGI’s Emissions Containment Reserve (ECR) and the Cost Containment Reserve (CCR); setting an interim target for 2030 in addition to the current zero-by-2040 trajectory; and implementation of the program review rules as soon as possible.

According to RGGI’s Program Review Update, member states are expected to release an updated Model Rule sometime in the fall/winter of 2024-25, followed by public meetings to review. States may release further Model Rule updates into Spring 2025.

Meanwhile, RGGI’s Allowance Auction 66 will be held on December 4. Volatility in the program’s membership roster appears to be reflected in allowance auction settlement prices in 2024, which have ranged from $16.00/short ton (st) in the first quarter auction to over $25.00/st in the third quarter auction, as stakeholders digest each development in both Virginia and Pennsylvania’s statuses within the program, and the progress of the latest program review.

Results for the final RGGI allowance auction of 2024 will be posted on December 6.