RGGI allowance prices set to increase 37% on the back of Virginia’s re-entry

Tighter supply, higher demand

The state of Virginia, whose power plants emitted about 30 million short tons of CO2 in 2024, is re-entering the Regional Greenhouse Gas Initiative (RGGI) after not having been part of the emission trading system among northeastern and mid-Atlantic states for two and a half years. The other states in the program agreed during that time to lower its caps significantly, with reforms that cut annual allowance budgets 86% over the next decade beginning in 2027. This severe decrease in allowance supply already makes for higher allowance prices over that decade, but Virginia’s rejoinder will likely decrease the supply-demand ratio even further. Power demand from the many new data centers being built in Virginia over the coming years is unlikely to be satisfied by renewably generated electricity alone, meaning more CO2 emissions from covered entities and thus higher demand for RGAs (the compliance units in RGGI) relative to supply. Our model forecasts how bullish this is for RGA prices.