RGGI: A path towards net zero

The Regional Greenhouse Gas Initiative (RGGI), one of the world’s oldest ETS programs, has functioned as a key instrument in helping reduce power sector emissions across the Northeast. Over the past several years its member states have implemented increasingly ambitious decarbonization targets, which are contingent, in part, to the continued functionality and utilization of the regional ETS. In response, RGGI regulators have conducted a series of program reviews to ensure that the ETS is best equipped to help its member states achieve their climate targets. The most recent, and ongoing, Third Program Review has proposed several different reform considerations to the ETS – most notably one-year compliance periods in lieu of the current three-year periods and zeroing out allowance supply by 2035 or 2040. Assuming the likely implementation of the 2040 allowance supply scenario, Veyt’s supply and demand model weighs the extent to which forecasted supply and emissions tighten the RGGI market. Our model shows a tighter market already from 2026 and most notably, forecasts a 43% reduction in cumulative allowance supply and a 21 Mst reduction in regional emissions by 2030. RGGI contract prices will see significant spikes from current levels upon implementation of the updated supply pathway – with the greatest bullish pushes occurring through 2035.