The Regional Greenhouse Gas Initiative (RGGI) was the first mandatory carbon cap-and-trade program in the U.S. designed to reduce greenhouse gas (GHG) emissions from the power sector in participating states. Thus far the program has been relatively successful with some states reporting powerplant C02 reductions of over 50% and significant auction revenues reinvested in energy efficiency. However, as the generation landscape continues to evolve, RGGI can have unintended negative consequences – both economic and environmental — when utilities in RGGI states import cheaper electricity from coal plants in neighboring, non-participating states. A new power market simulation study by consulting firm Tabors Caramanis Rudkevich (TCR) provides a case-in-point example in PJM.
TCR modeled the PJM wholesale electricity market over a one-year period from January 1, 2025 through December 31, 2025. Its quantitative evaluation was based on power market simulations under two scenarios – the Business as Usual (BAU) Case and the No RGGI Case. The BAU Case reflects the current condition in which RGGI is implemented in the states of Delaware, Maryland, and New Jersey. The No RGGI Case assumes that there is no PJM-state participation in RGGI. Under the BAU Case, TCR assumes that all generating units located in Delaware, Maryland, and New Jersey use a RGGI allowance cost of $20 per short ton of CO2.
Some Interesting Observations:
RGGI negatively affects consumers within the PJM footprint both economically and environmentally. In fact, continuation of the RGGI program in its current form appears to cause an increase in annual system-wide CO2 emissions of 2.7 million short tons; and an increase in annual cost to serve consumer load in every PJM pricing zone, totaling $1.16 billion across all zones.
It is clear from the comparison of the two scenarios (with and without RGGI) that the continuing participation of PJM states in the RGGI program, in its current form, contradicts RGGI’s intent, to reduce greenhouse gas emissions. At the same time, the program causes unjust economic harm to PJM consumers in the form of higher costs. The primary beneficiaries of this program are generating units located in neighboring non-RGGI participating PJM states that receive a total annual revenue increase of nearly $1.3 billion while the revenues of generating units located in participating states are reduced by $0.5 billion. This “leakage” problem will continue unless RGGI allowance costs are adjusted to have a more environmentally-positive effect on the merit order of generating unit dispatch, or RGGI is either mandated or adopted voluntarily well beyond the 11 current participating states. See the full TCR study whitepaper.