Is it time to rethink the Northeast’s cap-and-trade system?

Twenty years ago, a group of Northeastern states signed on to a plan to reduce the greenhouse gases spewing from power plants by making generators pay for the carbon they release. Since then, the region’s power sector emissions have dropped by half, and states have reaped more than $10 billion in revenue to invest in energy programs.

By these numbers, the Regional Greenhouse Gas Initiative, or RGGI, looks like a success. And plenty of clean energy advocates say the program has produced both direct and indirect benefits for the climate and residents’ utility bills.

Two decades in, however, the price power plants pay for each ton of carbon emissions is more than 12 times what it was at the beginning, clean energy development in the region faces daunting challenges, and emissions have started creeping back up. A growing chorus of voices is now questioning whether RGGI is still worth the investment at a time when soaring power prices are straining household budgets.

“I think it’s appropriate to look at RGGI and see to what degree it is amplifying its intended purpose, or if it needs to be pulled back,” said Dan Dolan, president of the New England Power Generators Association, a trade group representing most of the region’s generating capacity.

Globally, carbon cap-and-trade is a common strategy for lowering greenhouse gas emissions. The European Union, China, and South Korea all operate such systems. It’s been slower to catch on in the United States, however. RGGI is the first and only multistate carbon cap-and-trade program in the country; just California, Oregon, and Washington have state-level systems.

RGGI was designed to reduce climate pollution in two ways. First, there’s the cap-and-trade system. Large power generators in participating states are required to buy an allowance for every ton of carbon dioxide they produce, which creates a financial incentive to lower emissions. The cap on total emissions allowed in the region drops every year, generally pushing the price up over time. The price is set through quarterly auctions, though generators can buy and sell allowances on the secondary market, so the actual cost is often higher than that set by the auction. The expense is passed on to consumers.

Each state can then use the revenue collected through these payments to support its own programs for clean energy, energy efficiency, climate adaptation, and bill assistance, potentially leading to even greater reductions in power consumption and associated emissions.

RGGI ran its first auction in 2008 with 10 states: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont. The process yielded a price of $3.07 per ton of carbon dioxide.

Today, 11 states participate in the program. New Jersey dropped out in 2012 but rejoined in 2020, and Virginia participated in the auctions from 2021 to 2023, then restarted this year. The most recent auction, held last week, yielded a price of $37.65 per allowance.

During the first decade of RGGI auctions, carbon emissions in the nine consistently participating states fell sharply, from a peak of 117.5 million short tons in 2010 to a low of 61.9 million short tons in 2020. Much of this drop can be attributed to the retirement of coal-fired power plants across the region, particularly in New England and New York. In 2007, coal accounted for 15% of the electricity generation in those seven states; today, no coal plants operate in any of them.

RGGI’s carbon price likely helped drive that decrease, experts say. However, there were other contributing factors, including state climate regulations and the economics of trading coal generation for plants that use lower-priced, cleaner-burning natural gas.

“I don’t think you can realistically attribute it all to one mechanism,” said Paolo Moncada Tamayo, senior policy and data analyst for climate nonprofit Acadia Center and a strong supporter of RGGI.

Then, after 2020, emissions stopped falling and even started trending back up slightly, once the low-hanging fruit of the coal-to-gas transition was largely gone. Since that time, it’s been a lot harder for RGGI to have an impact, say supporters and critics alike.

“The earlier RGGI era was easier and cheaper,” Tamayo said. ​“We’re at a point where it’s not as easy and not as affordable to decarbonize.”

There is widespread agreement that the pace of renewable energy construction must pick up to kick-start further reductions as energy demand balloons. However, federal attacks have nearly stopped development of the offshore wind that much of the Northeast was banking on to help clean up the grid.

At the same time, congested transmission infrastructure and a patchwork of inconsistent local and county policies can make it hard for development to gain traction. Existing state-level renewable energy policies are generally not strong enough to get things going, said Noah Kaufman, a senior research scholar on clean energy at Columbia University. A much higher carbon price could have an effect, he said, but RGGI includes a mechanism to release more allowances as a way to lower costs if the price creeps up too high, and the participating states do not seem interested in changing that, he said.

“If they’re serious about those goals, they would need some pretty big policy shifts going forward,” he said. ​“If it were me and I didn’t have constraints or stakeholders, I probably would get rid of RGGI and think along the lines of some combination of clean electricity and clean heating standards.”

At the same time, some argue that RGGI is actively worsening emissions by encouraging utilities to buy dirtier power from adjacent states where generators don’t have to pay a carbon price. Critics say power plants in Delaware, Maryland, New Jersey, and Virginia, in particular, are at a competitive disadvantage; those states are part of the grid run by PJM Interconnection, and generators in the grid region’s nine non-RGGI states don’t have to add the cost of RGGI onto their price tag.

“They can’t compete economically with dirtier coal or even gas plants from Ohio, from West Virginia,” said Ray Cantor, deputy chief government affairs officer for the New Jersey Business and Industry Association.

Cantor’s organization has launched a campaign to convince New Jersey leaders to again leave the program, and instead charge power plants $7 per ton of carbon emissions. The system would create about $135 million in annual revenue for New Jersey, according to an analysis commissioned by the business group, though Cantor acknowledges it would do little to curb pollution.

Others, however, say that the emissions and economic impacts made by investing RGGI revenue are inarguable and invaluable. The investment of proceeds from 2024 alone are forecast to avoid 4.3 billion short tons of carbon emissions over their lifetime — roughly the amount of carbon released by burning 440 billion gallons of gasoline.

These investments also produce savings for consumers, largely through energy-efficiency measures, but also by supporting cost-cutting electrification and direct bill assistance, Tamayo said. In New England, the investment of RGGI revenue from 2025 should result in $1.3 billion in lifetime savings, according to her analysis.

“We can’t lose sight of that just because of a moment of high prices,” she said.