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Why are Allowance Prices in RGGI Beyond $45?

Why are Allowance Prices in RGGI Beyond $45?

WHAT’S HAPPENED?

After the news of VA’s re-entry early this week, RGAs exploded in price, increasing 32.18% WoW. This note aims to deconstruct what happened at a high level.

Figure 1: RGGI ICE Daily Price Change, Data Source: Intercontinental Exchange

Virginia has formally committed to rejoining the Regional Greenhouse Gas Initiative (RGGI), reversing its 2023 withdrawal from the cap-and-trade program. On April 13, 2026, the Virginia General Assembly’s House Bill 397 (HB397) was approved by Governor Abigail Spanberger and became Chapter 920 of the Virginia Acts of Assembly, effective July 1, 2026. The statute amends the Clean Energy and Community Flood Preparedness framework to mandate participation in RGGI beginning in the second half of 2026.

Under state law, regulatory actions to resume RGGI participation must be completed by May 21, 2026, consistent with directives in HB29. Upon completion, Virginia is set to begin compliance obligations on July 1, 2026, with covered entities required to purchase allowances in the September and December 2026 auctions. Virginia is doing a six-month initial control period i.e.; entities would be required to hold allowances equal to all of their emissions come next surrender deadline.

There is some precedence on this – primarily relating to when New Jersey rejoined the program in 2020 after leaving in 2012. They adopted their formal rules in 2019 and started participation in 2020 – which was the last full year of the fourth control period. For that time frame, the relevant law defined 2020 as the “initial control period” which was basically one full year of compliance with a full surrender at the end, making sure that 2021 onwards NJ was aligned with the rest of RGGI. (More info on this here: Microsoft Word – njac7_27c Pg 20,31)

KEY Drivers — SUPPLY SIDE

1.1 Cap Adjustment and Allowances on Market

Virginia’s reinstatement introduces a state-specific allowance allocation into the RGGI regional cap. Because Virginia was not present during the latest RGGI program review and Model Rule adoption, the Commonwealth’s budget was not integrated into the final revisited cap framework.

For the remainder of 2026, Virginia’s carbon budget is split for half-year participation:

Base Allowance Budget:48 million short tons (50% of 22.96 million)
Cost Containment Reserve (CCR):148 million short tons (50% of 2.296 million)

This yields approximately 12.628 million short tons of allowances available for auction in the second half of 2026. However, DEQ’s site as of 31^st April 2026 states that “The timing of the use of the Virginia CCR is to be determined.” So currently, entities only have 11.48M RGAs in the program.

1.2 2027 Budget and Model Rule Alignment

Virginia’s budget for 2027 and beyond will be established during a second regulatory action mandated by HB29 that must fully align with the updated RGGI Model Rule taking effect in 2027.

KEY Drivers — DEMAND SIDE

VA’s historical emissions data shows emissions increasing YoY over the past three years since their RGGI exit. They are also one of the states that have seen a lot of data centre growth in recent times, resulting in increased generation demand, most of which is met by natural gas.
Virginia’s 2025 generation data from EIA shows continued reliance on natural gas i.e., 57.26% in the state’s power mix. While clean energy output is increasing on a year-to-date basis, monthly generation shares remain weighted toward natural gas. Total in-state electricity generation reached 105.97 TWh in 2025, up 3.19% YoY. Clean energy sources (hydro, nuclear, biomass, solar, and wind) collectively contributed 37.16%.
Since, natural gas makes up most of Virginia’s electricity generation, power-sector emissions remain high. Because the natural gas share is significantly high in Virginia’s total energy profile (figure 2), the potential for decarbonization is also high. Accordingly, it will likely be the case that Virginia will be a net-buyer in RGGI.

Figure 2 Virginia Emissions Trend, Source: VA DEQ

Screenshot 2026 05 01 162641

Table 1: Total Energy Generation by Source in Virginia. Source: EIA

Figure 3 Total Energy Generation by Source in Virginia. Source: EIA

cCarbon’s View

2.1 Current pricing is a result of the following:

Supply Shortage in VA Caps: The current cap of 11.48M is insufficient to meet 50% of compliance demand for 2026, representing only a third of annual emissions if emissions remain flat, creating a notable supply crunch in the VA caps.
Surplus Bank Overview: RGGI’s surplus bank stands at around 30M according to cCarbon’s latest estimates. However, with the addition of the VA, this could contribute an additional 10-15M worth of demand, tightening the market further.
Price Pressure and Compliance Strain: As 2026 marks the final year of the current control period, entities are facing increased pressure to secure allowances. The surplus bank may be partly held by investors, which further exacerbates the situation, leading to higher prices.
Note that RGGI also does not have advance auctions like WCI/WA – so there are no other supply inputs coming into the program.