Based on the most recent carbon tax imposed on the member states of the Regional Greenhouse Gas Initiative (RGGI), Virginians will pay about $500 million more per year for electricity if Virginia again becomes one of those member states. Your vote in November may determine that.
Democratic nominee for governor Abigail Spanberger has pledged to rejoin the RGGI compact and reinstate the carbon tax. Republican nominee Winsome Earle-Sears has promised to maintain the policy of Governor Glenn Youngkin and stay outside of RGGI. There is also a pending lawsuit that challenges Youngkin’s actions in withdrawing.
There is a clear demarcation between the political parties on rejoining RGGI and adding this cost to Virginia’s electricity customers. Getting us out of RGGI was Youngkin’s most successful initiative to lower electricity bills. Every Virginia generator – both utilities and independent generators – had to buy an allowance (pay a tax) for every ton of carbon dioxide its plant emits from using coal, oil or natural gas.
RGGI held its third 2025 auction for carbon emission allowances September 3 and the results were released today. The clearing price to purchase an allowance was set at $22.25 per emitted ton. The peak was a year ago at $25.75 per ton. The first two 2025 auctions cleared at just under $20 per ton.
Following a vote of the General Assembly under our previous Democratic governor, Virginia was part of RGGI from 2021 through 2023 and collected $828 million from the generating plants. Dominion Energy Virginia was the largest buyer of RGGI allowances, and it merely passed the cost directly to customers with a special charge on monthly bills.
When the bill passed in early 2020, the RGGI carbon tax was $5.65 per ton of emitted CO2. By Virginia’s final auction in December 2023, it has risen to $14.88, a 163% rise in under four years. The current tax of $22.25 is four times higher than 2020’s and will only keep rising. A four-fold increase in five years is a trend hard to ignore.
Had Virginia stayed in during 2024 and 2025, the state would have collected almost another $1 billion in carbon taxes. The Democrats in the General Assembly divided the tax revenue between projects to control or prevent flooding and grant programs to improve energy efficiency in homes.
Both spending streams quickly attracted special interest cheering squads which have kept up the drumbeat to get the money back. When Democrats advocate for RGGI, they talk about where the money goes and never about where the money comes from. Utilities and their shareholders do not pay it, customers ultimately do. Increasing the price of hydrocarbon energy is the purpose of a carbon tax and always has been.
The quarterly auctions are not the only way the price for these allowances gets set. There is also an active secondary market. Buyers in the auction do not need to be utilities, or “compliance entities” to use the term RGGI applies. Investors buy, hold, speculate and trade unused allowances and if a utility is in a pinch, it buys an allowance on the secondary price. They bet on the future price and trade in options. Last quarter 25 million unused allowances changed hands.
Here are some other summary points from the latest secondary market report:
- Prices fell steeply from $23 to $16.50 in the second week of the quarter corresponding with the issuance of a presidential executive order (issued April 8th) directing the Attorney General to identify State Laws related to carbon emissions, penalties, and taxes. In the following days, prices rebounded, nearly reaching $22 by mid-May. Prices declined again to about $19.50 at the end of May and just prior to the June auction, which had a clearing price of $19.63. After the auction, prices rose steadily to $23.40 and then dipped to $22 at the very end of the quarter.
- The Cost Containment Reserve (“CCR”) will not be available again until the March 2026 auction at a CCR Trigger Price of $18.22.
- Trading of options on RGGI futures and average option-implied volatility (a measure of market expectations of future price volatility) increased dramatically in the past 12 to 18 months with the largest trade volume occurring in the second quarter of 2024. Options trading volume in the second quarter of 2025 declined to one-third of the second quarter of 2024 volume while average option implied volatility remained high at 61 percent in the current quarter.
This is another point that never comes up when the advocates praise RGGI. The carbon cap and tax program among the various northeastern states also produces profits for speculators along with all that revenue for the various state governments to spend. Add another group with a valuable vested interest to bringing Virginia back in the fold.
Steve Haner is a Senior Fellow for Environment and Energy Policy. A previous version of this article appeared in Bacon’s Rebellion. Steve Haner can be reached at [email protected].
