The RGGI front-Dec (benchmark) contract is currently USD 2.65 higher than the equivalent contract in the California-Quebec market. High demand from power utilities amid limited supply has pushed RGA prices to record highs in recent weeks, whereas regulatory uncertainty and the potential for less stringent allowance budget cuts pushed the California Carbon Allowance (CCA) benchmark contract in the California-Quebec market down steadily throughout the fall. The additional supply that will enter the RGGI market in 2026, however, makes it unlikely that this trend will persist in the new year.
The RGGI benchmark contract has increased by over USD 8.00 since September, and over USD 12.00 since the price crash after President Trump’s executive orders in April. Meanwhile the price of the benchmark contract in the Western Climate Initiative’s (WCI) California-Quebec market has been at its lowest since 2022. RGAs are measured in short tons (st) while CCAs are, like EUAs and all other carbon allowance units, measured in metric tons: on a metric ton basis, RGA prices have even exceeded CCAs by over USD 2.00 since the end of November.
The recent bullish trend in RGGI contract prices is largely driven by fundamentals: there is currently an elevated compliance demand after a high-emissions year. Natural gas fired electricity dominates the generation mix in the Independent System Operators (ISOs) of New England, New York, and PJM so an increase in power demand due to cold temperatures (many heating systems in the Northeast and mid-Atlantic are heat pumps which run on electricity) means operators dispatch proportionally more natural gas sources, leading to higher emissions and power prices.
This dynamic is intensified in the fall and winter, when solar output declines and natural gas covers a greater share of generation, see Figure 2.
Figure 2: New England Independent System Operator gas and solar power generation
RGGI states have largely phased out other fossil-fuel options such as coal and oil. Unlike markets such as the EU ETS, where coal-to-gas fuel switching provides lower-cost abatement opportunities, RGGI power plants have few short-term options to reduce emissions. Sustained levels of elevated demand have thus extended and amplified the upward momentum in RGGI prices over the past month.
This dynamic applies to the power sector in California as well, but not nearly to the extent it does in RGGI: natural gas accounts for only 38% of California’s power mix (compared to 52% in RGGI), while non-emitting and renewable energy sources account for the other 62%. California’s warmer climate also mitigates sizeable increases in demand during the winter season. Therefore, California and Quebec have a much smaller correlation between increases in power demand and emission allowance demand.
On top of all this, the power sector makes up only 14% of total emissions in the California-Quebec joint ETS. Sectors like transportation (accounting for nearly half of total emissions) are the main drivers of allowance prices when it comes to fundamentals.
The bearish trend in CCA prices in recent weeks is tied to regulatory conditions. In a recent workshop, the California Air Resources Board (CARB) introduced a trajectory for the cap-and-invest program that is not as steep as stakeholders had expected. The new proposal calls for an 118-million-ton reduction to 2027 – 2030 supply budgets rather than the previous 180 – 265 million reduction from 2026 – 2030 proposed in earlier workshops. CCA contract prices also seem to be more sensitive to the federal government’s anti-climate agenda than RGA contract prices.
We expect RGGI allowance prices to decline in 2026. In the draft Model Rule published earlier this year, regulators announced that from next year there will no longer be regular adjustments to future caps to account for the banked supply of allowances. This means that the 2026 cap will remain at 78.91 Mst – 18% higher than the 2025 adjusted cap of 66.88 Mst. A higher-than-anticipated supply, coupled with a resupplied CCR, makes for lower prices at the same or lower demand levels.
RGGI’s power mix is also set to decarbonize slightly in 2026: Avangrid’s New England Clean Energy Connect transmission line is expected to start delivering 1,200 MW of baseload hydropower from Quebec into the New England grid. This carbon free electricity is projected to offset fossil generation that would have emitted nearly 4 million tons annually, further decreasing demand for RGAs.
However, we maintain a bullish outlook for RGA prices in the longer term. With the rapid construction of power-intensive data centers in RGGI states, electricity demand is set to rise more than expected meanwhile, offshore wind power capacity will likely not be built. A report released by PJM projects a 32 GW growth in peak load by 2030, 94% of which will come from data centers. The installation of over 9,000 MW of offshore wind capacity – enough to power 4.2 million homes across Massachusetts, New York, and Rhode Island – are now either halted, delayed, or threatened by the Trump administration’s executive order. Concurrently, RGGI’s draft Model Rule proposes an 86% reduction in 2027 – 2037 allowance budgets. If emission reductions decline at a slower rate than the cap, the banked supply of allowances will deplete at a faster rate, which in turn puts upward pressure on RGGI prices.
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