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Use this function to compare the design elements and characteristics of up to three ETSs from around the world.
USA - California Cap-and-Trade Program
General Information
The California Cap-and-Trade Program began operation in 2012 with the opening of its tracking system for allocation, auction distribution, and trading of compliance instruments. Compliance obligations started in January 2013. The program covers ~75% of the state’s GHG emissions.
The program covers ~400 facilities and emissions from the power, industrial, transport, and buildings sectors. Covered entities must surrender allowances for all their covered emissions. Allowances are distributed via a combination of auction, free allocation, and free allocation with consignment. The proceeds from auctioning are reinvested in projects that reduce emissions, strengthening the economy, public health, and the environment, especially in disadvantaged communities.
The California Cap-and-Trade Program is implemented under the authority of the California Air Resources Board (CARB). California has been part of the Western Climate Initiative (WCI) since 2007 and formally linked its program with Québec’s in January 2014.
In December 2022, the Board of CARB approved the “2022 Scoping Plan for Achieving Carbon Neutrality”. The plan lays out a path of carbon neutrality that includes a 48% reduction of emissions below 1990 levels in 2030, which exceeds California’s statutory 40% reduction target. CARB announced it would evaluate all major programs, including the Cap-and-Trade Program, to assess the need to increase the stringency between now and 2030 and a Program through 2045.
A series of informal stakeholder workshops began in June to consider potential amendments to the program. CARB presented three different scenarios for revising future allowance budgets consistent with emission reductions of 40%, 48%, and 55% below 1990 levels. Among other topics considered during public workshops were updates to cost-containment mechanisms, the use of revenues from consigned allowances, and carbon leakage protection measures.
Any amendments to the Cap-and-Trade Regulation are expected to be voted on by the Board of CARB by the end of 2024, with the changes potentially implemented from 2025.
Emissions & Targets
381.3
By 2030: 40% reduction from 1990 GHG levels (SB 32)
By 2045: Carbon neutrality and 85% reduction from 1990 anthropogenic GHG levels (AB 1279)
Updated prices available here
Size & Phases
FIRST COMPLIANCE PERIOD: Two years (2013 and 2014)
SECOND COMPLIANCE PERIOD: Three years (2015 to 2017)
THIRD COMPLIANCE PERIOD: Three years (2018 to 2020)
FOURTH COMPLIANCE PERIOD: Three years (2021 to 2023)
FIFTH COMPLIANCE PERIOD: Three years (2024 to 2026)
A cap limits the total emissions allowed in the system.
FIRST COMPLIANCE PERIOD: The system started in 2013 with a cap of 162.8 MtCO2e, declining to 159.7 MtCO2e in 2014, at a rate of ~2% annually.
SECOND COMPLIANCE PERIOD: With the program expanding to include fuel distribution, the cap rose to 394.5 MtCO2e in 2015. The cap decline factor averaged 3.1% per year in the second compliance period (2015 to 2017), reaching 370.4 MtCO2e.
THIRD COMPLIANCE PERIOD: The cap in the third compliance period started at 358.3 MtCO2e and declined at an average annual rate of 3.3% to 334.2 MtCO2e in 2020.
FOURTH COMPLIANCE PERIOD AND BEYOND: During the 2021 to 2030 period, the cap declines by about 13.4 MtCO2e each year, averaging ~4% per year, to reach 200.5 MtCO2e in 2030.
The “Cap-and-Trade Regulation” sets a formula for declining caps after 2030 through 2050.
FIRST COMPLIANCE PERIOD: Covered sectors included those that have one or more of the following processes or operations: large industrial facilities (including cement, glass, hydrogen, iron and steel, lead, lime manufacturing, nitric acid, petroleum and natural gas systems, petroleum refining, and pulp and paper manufacturing, including cogeneration facilities co-owned/operated at any of these facilities); electricity generation; electricity imports; other stationary combustion; and CO2 suppliers.
SECOND COMPLIANCE PERIOD AND BEYOND: In addition to the sectors listed above, suppliers of natural gas, suppliers of reformulated blendstock for oxygenateblending (i.e., gasoline blendstock) and distillate fuel oil (i.e., diesel fuel), suppliers of liquefied petroleum gas in California, and suppliers of liquefied natural gas are covered by the program.
INCLUSION THRESHOLDS: Facilities emitting ≥25,000 tCO2e per year. All electricity imported from specified sources connected to a specific generator with emissions >25,000 tCO2e per year is covered. Emissions associated with imported electricity from unspecified sources have a zero threshold, and all imported electricity emissions are covered using a default emissions factor.
OPT-IN COVERED ENTITIES: A facility in one of the covered sectors that emits <25,000 tCO2e annually can voluntarily participate in the Program. Opt-in entities are subject to all registration, reporting, verification, compliance obligations, and enforcement applicable to covered entities.
Upstream (buildings and transport); point source (industry, in-state power generation); imported electricity at the point of first delivery onto California’s electricity grid.
~400 facilities
Allowance Allocation & Revenue
Allowances are distributed via free allocation, free allocation with consignment, and auction.
FREE ALLOCATION: Industrial facilities receive free allowances to minimize carbon leakage. For nearly all industrial facilities, the amount is determined by product-specific benchmarks, recent production volumes, a cap adjustment factor, and an assistance factor based on assessment of leakage risk.
Leakage risk is divided into “low”, “medium”, and “high” risk tiers based on levels of emissions intensity and trade exposure for each specific industrial sector.
FIRST COMPLIANCE PERIOD: The Cap-and-Trade Regulation as adopted in 2011 set assistance factors of 100% for the first compliance period, regardless of leakage risk.
SECOND COMPLIANCE PERIOD AND BEYOND: For facilities with medium leakage risk, the original regulation included an assistance factor decline to 75% for the second compliance period and to 50% for the third. For facilities with low leakage risk, it included an assistance factor decline to 50% for the second compliance period and to 30% for the third. However, amendments to the Cap-and-Trade Regulation made in 2013 delayed these assistance factor declines by one compliance period. Pursuant to AB 398 adopted in 2017, all assistance factors were changed to 100% through 2030, citing continued vulnerability to carbon leakage. There is no cap on the total amount of industrial allocation, but the formula for allocation includes a declining cap adjustment factor to gradually reduce allocation in line with the overall cap trajectory.
Free allocation is also provided for transition assistance to public wholesale water entities, legacy contract generators, universities, public service facilities, and, during the period 2018-2024, waste-to-energy facilities.
FREE ALLOCATION WITH CONSIGNMENT: Electrical distribution utilities and natural gas suppliers receive free allocation on behalf of their ratepayers. Natural gas and electric utilities must use the allowance value for ratepayer benefit and for GHG emissions reductions. All allowances allocated to investor-owned electric utilities and an annually increasing percentage of allowances allocated to natural gas suppliers must be consigned for sale at the state’s regular quarterly auctions. Publicly owned electric utilities can choose to consign freely allocated allowances to auction or use them for their own compliance needs.
AUCTIONING:
• Auction share: ~70% of total California-issued vintage 2023 allowances made available through auction in 2023, which included allowances owned by CARB (~41%) and allowances consigned to auction by utilities (~29%).
• Auction volume: 197,368,635 (2023 vintage) 25,400,000 for advance auction (2026 vintage).
Unsold allowances in past auctions are gradually released for sale at auction after two consecutive auctions are held in which the clearing price is higher than the minimum price. However, if any of these allowances remain unsold after 24 months, they will be placed into CARB’s price ceiling reserve or into the two lower reserve tiers (see ‘Market Stability Provisions’ section). To date, 37 million allowances originally designated for auction have been placed in reserves through these provisions.
USD 26.97 billion since beginning of program
USD 4.72 billion in 2023
REVENUE FROM AUCTION OF CALIFORNIA-OWNED ALLOWANCES: Most of California’s auction revenue goes to the Greenhouse Gas Reduction Fund, of which at least 35% must benefit disadvantaged and low-income communities. The funds are then distributed as California Climate Investments, which support projects that deliver significant environmental, economic, and public health benefits across the state. As of May 2023, USD 9.8 billion (of the total USD 27.0 billion revenue raised) has been invested in 569,477 projects, with expected GHG reductions of 98 MtCO2e. Over USD 7.2 billion has reached disadvantaged and low-income communities.
REVENUE FROM AUCTION OF UTILITY-OWNED ALLOWANCES: Investor-owned electric utilities and natural gas suppliers are allocated allowances, a portion of which must be consigned to auction. Auction proceeds must be used for ratepayer benefit and for GHG emissions reductions.
Flexibility & Linking
Banking is allowed, but is subject to a holding limit on allowances to which all entities in the system are held. The holding limit is based on the year’s cap and decreases annually. Entities may also be eligible for a limited exemption from the holding limit based on their emissions levels to support meeting annual compliance obligations or obligations at the end of a three-year compliance period.
Borrowing is not allowed.
The use of compliance offset credits is allowed. Such credits, issued by CARB or by the authority of a linked cap-and-trade system, are compliance instruments under the California Cap-and-Trade Program.
QUALITATIVE LIMIT: Currently, offset credits originating from projects carried out according to one of six compliance offset protocols are accepted as compliance instruments:
• US. forest projects;
• Urban forest projects;
• Livestock projects (methane management);
• Ozone-depleting substances projects;
• Mine methane capture projects; and
• Rice cultivation projects.
Compliance offset credits issued by jurisdictions linked with California (i.e., Québec) are eligible to be used to satisfy a California entity’s compliance obligation, subject to the quantitative limits described below.
To ensure environmental integrity, California’s compliance offset program has incorporated the principle of buyer liability. The state may invalidate an offset credit that is later determined not to have met the requirements of its compliance offset protocol due to double counting, over-issuance, or regulatory non-conformance. The entity that surrendered the offset credit for compliance must then substitute a valid compliance instrument for the invalidated offset credit.
QUANTITATIVE LIMIT: For 2013 to 2020 emissions, entities could meet up to 8% of their obligations using offset credits. For emissions after 2020, entities are subject to lower limits on the use of offset credits established by AB 398. The share of offsets that can be used to fulfil the compliance obligation is 4% per year for 2021 to 2025 emissions, and 6% for 2026 to 2030 emissions.
In addition to setting new quantitative limits on the use of offset credits, AB 398 set new limits on the types of offset credits that can be used to fulfil compliance obligations. Starting with compliance obligations for 2021 emissions, no more than 50% of any entity’s offset usage limit can come from offset projects that do not provide direct environmental benefits to the state (DEBS).
Projects located within California are automatically considered to provide DEBS. Offset projects implemented outside of California may still result in DEBS, based on scientific evidence and project data provided. For example, a forest project outside California has been determined to provide benefits within California by improving the quality of water flowing through the state. Recent regulatory amendments specify the criteria used to determine DEBS.
California’s program linked with Québec’s in January 2014. The two expanded their joint market by linking with Ontario in January 2018 until the termination of Ontario’s system in mid-2018.
Compliance
Except for the year following the last year of a compliance period, compliance instruments equal to 30% of the previous year’s verified emissions must be surrendered annually, by the start of November. Compliance instruments equal to all remaining emissions must be surrendered by the start of November of the year following the last year of a compliance period.
REPORTING FREQUENCY: Annually
VERIFICATION: Emissions data reports and their underlying data require annual verification by an independent third-party for all entities covered by the Program.
FRAMEWORK: Reporting is required for most emitters at or above 10,000 tCO2e per year. They must implement internal audits, quality assurance, and control systems for the reporting program and the reported data.
A covered entity that fails to surrender sufficient compliance instruments to cover its verified GHG emissions on either an annual surrender deadline or a compliance period surrender deadline is automatically assessed an untimely surrender obligation. It is required to surrender the missing compliance instruments as well as three additional compliance instruments for each compliance instrument it failed to surrender.
Failure to meet this untimely surrender obligation would subject the entity to substantial financial penalties for its noncompliance, pursuant to “California Health and Safety Code Section 38580”.
Separate and substantial penalties apply to mis-reporting or non-reporting under the “Regulation for the Mandatory Reporting of Greenhouse Gas Emissions”.
Market Regulation
MARKET PARTICIPATION: Covered entities, opt-in covered entities, and voluntarily associated entities can participate in the program. Voluntarily associated entities are approved individuals or entities that intend to:
- purchase, hold, sell, or retire compliance instruments but are not covered under the program;
- operate a compliance offset project registered with CARB; or
- provide clearing services and derivative clearing services as qualified entities.
Voluntarily associated entities must be in the United States and have an approved account in the system registry, the Compliance Instrument Tracking System Service (CITSS). Additional eligibility criteria apply, including for individual market participants.
MARKET TYPES:
Primary: Allowances are made available through sealed-bid auctions. State-owned and consigned allowances are offered through quarterly allowance auctions organized jointly with Québec. Auctions are administered by WCI, Inc.
Secondary: Allowances, offset credits, and financial derivatives are traded in the secondary market on the Intercontinental Exchange (ICE), CME group, and Nodal Exchange platforms. Any company qualified to access these platforms can trade directly or through a future commission merchant. Companies can also trade directly over the counter but must have a CITSS account to take delivery of compliance instruments.
LEGAL STATUS OF ALLOWANCES: Allowances are defined as limited tradable authorizations to emit up to one tCO2e. According to the “California Code of Regulations”, an allowance does not constitute property or bestow property rights and cannot limit the authority of the regulator to terminate or limit such authorization to emit.
Auction Reserve Price: USD 24.04 per allowance in 2024. The auction reserve price increases annually by 5% plus inflation, as measured by the Consumer Price Index.
Reserve: Some allowances from each annual cap are placed in an Allowance Price Containment Reserve (APCR). Prior to amendments mandated by AB 398, these allowances were spread across three reserve tiers in an earlier APCR. Pursuant to AB 398, from 2021 onward, these allowances have been placed into two price tiers and a price ceiling.
Specifically, AB 398 directed where allowances from the earlier APCR would be distributed. Two-thirds of those allowances were spread evenly across the two APCR price tiers. The remaining one-third (which had previously been spread evenly across the original three price tiers), plus unsold allowances that had been transferred into the APCR (about 37 million to date), have been placed into the price ceiling. In addition, the Cap-and-Trade Regulation also set aside portions of annual 2021-2030 allowance caps for the two APCR price tiers.
Although no reserve sale has been held to date, CARB will offer one if auction settlement prices from the preceding quarter are greater than or equal to 60% of the lowest APCR price tier. CARB also always offers the third quarter APCR sale before the November compliance obligation deadline.
At the price ceiling, a covered entity can purchase allowances (or, if no allowances remain, “price ceiling units”) up to the amount of its current unfulfilled emissions obligation. The revenues from the sale of price ceiling units will be used to purchase real, permanent, quantifiable, verifiable, enforceable, and additional emissions reductions on at least a tonne for tonne basis. Sales at the price ceiling will only be conducted if no allowances remain at the two lower APCR tiers and a covered entity has demonstrated that it does not have sufficient compliance instruments in its accounts for that year’s compliance event.
In 2024, the two APCR tiers and the price ceiling are set at USD 56.20, USD 72.21, and USD 88.20, respectively. Tier prices and the price ceiling increase by 5% plus inflation (as measured by the Consumer Price Index).
Other Information
California Air Resources Board: Responsible for the design and implementation of the Cap-and-Trade Program.
Western Climate Initiative, Inc.: Non-profit organization that provides cost-effective administrative and technical solutions for supporting the coordinated development and implementation of participating jurisdictions’ GHG emissions trading programs, such as administering auctions and maintaining the system registry (CITSS).
Pursuant to requirements in existing legislation (AB 32, AB 197, and AB 398), CARB must update the “California Climate Change Scoping Plan” at least every five years and must provide annual reports to various committees of the Legislature and the Board. The Scoping Plan provides updates on progress toward climate targets and lays out strategies to achieve them, including the role and level of effort accorded to different programs in the state’s portfolio approach to climate mitigation. The latest update to the Scoping Plan was adopted in December 2022.
Global Warming Solutions Act of 2006 (AB 32)
2018 amendments to the 2021-2030 period
Current regulation can be found on the CARB website
USA - Regional Greenhouse Gas Initiative (RGGI)
General Information
The Regional Greenhouse Gas Initiative (RGGI) launched in 2009 and is the first mandatory GHG ETS in the United States. It started operating with ten states (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont). RGGI’s development was based on the “2005 RGGI Memorandum of Understanding” (MOU) and on the “2006 RGGI Model Rule”. Through statutes or regulations based on the Model Rule, each state then established individual CO2 budget trading programs. New Jersey withdrew from RGGI at the end of the first phase, or “control period” (see ‘Compliance’ section) in December 2011 and later rejoined in 2020, while Virginia joined in 2021 and has left as of 2024.
RGGI covers power sector emissions in participating states. In 2020, it covered around 14% of the aggregate participant states’ emissions; in 2021, 228 facilities were covered by the state regulations. The aggregate cap will decrease by 30% compared to 2020 between 2021 and 2030. Under the ETS, covered entities must surrender allowances for all their covered emissions. Covered entities obtain most of their allowances through regular auctions, while some states have “set-aside” accounts from which they may transfer a limited number of allowances to entities’ compliance accounts.
RGGI has undergone two review processes that updated the Model Rule and enshrined tighter caps and adjustments to system design. RGGI’s third review process is currently ongoing.
The RGGI states initiated the Third Program Review in summer 2021 to analyze the program’s successes, impacts, potential additional reductions to the cap post-2030, and other design elements.
As part of the process, in September, the RGGI states presented the Spring Modelling Framework, which originally considered five illustrative allowance supply scenarios:
- Current RGGI trajectory (baseline): with a flat cap post-2030
- Extend reduction: extends the reduction trajectory post-2030
- Zero by 2040: the cap trajectory goes to zero between 2030 and 2040
- Zero by 2040: start in 2026: the cap trajectory goes to zero between 2026 and 2040
- Zero by 2035: the cap goes to zero by 2035.
The states will update the baseline scenario and not pursue the “extend reduction” scenario. The model thus analyzes the “zero by 2040” and “zero by 2035” scenarios. The model considered three sets of assumptions, in which more renewables and electrification are modelled, and presented results on RGGI-affected emissions, allowance price projections, and capacity mix, in the period 2025 to 2035.
The RGGI states also presented the draft RGGI emissions dashboard for review and public comment. RGGI’s third review process is currently ongoing.
Virginia repealed its CO2 Budget Trading Program following executive action started by the state’s administration in 2022. The repealing regulation was approved by the state’s Air Pollution Control Board in June and became effective by the end of August. The state thus stopped participating in RGGI in December.
Emissions & Targets
631.8 MtCO2e (2021)*
* This value includes Virginia but not Pennsylvania. Values presented here are taken from the “Inventory of U.S. Greenhouse Gas Emissions and Sinks by State” by the Environmental Protection Agency (EPA, available here), aggregated for the RGGI states. While each state publishes official inventory data and the values published by the EPA should not be viewed as official state data, the EPA estimates are presented here to ensure the methodological consistency of data collection and aggregation for inventory categories across RGGI states, as well as to ensure a common reporting year in the data. There may be differences between the EPA estimates and the official state inventories.
By 2030: 30% reduction in power sector emissions compared to the 2020 CO2 emissions cap (2017 Model Rule)
Note: Participating states have their own emission targets; economy-wide targets are not defined at the level of RGGI.
USD 12.81 (weighted average auction price in 2023; updated prices available here)
Size & Phases
FIRST PHASE: 2009 to 2011
SECOND PHASE: 2012 to 2014
THIRD PHASE: 2015 to 2017
FOURTH PHASE: 2018 to 2020
FIFTH PHASE: 2021 to 2023
SIXTH PHASE: 2024 to 2026
A cap limits the total emissions allowed in the system. A cap trajectory until 2030 has been set.
Phases in RGGI are also known as “control periods”.
FIRST PHASE (2009-2011): 564 million short tons CO2 or 512 MtCO2 (188 million short tons CO2 or 171 MtCO2 per year)
SECOND PHASE (2012-2014): 413 million short tons CO2 or 374 MtCO2
2012 and 2013: 165 million short tons CO2 or 150 MtCO2 per year
2014:83 million short tons CO2 or 75 MtCO2
THIRD PHASE (2015-2017): 194 million short tons CO2 or 176 MtCO2
2015: 67 million short tons CO2 or 61 MtCO2
2016: 65 million short tons CO2 or 59 MtCO2
2017: 62 million short tons CO2 or 57 MtCO2
FOURTH PHASE (2018-2020): 193 million short tons CO2 or 175 MtCO2
2018: 60 million short tons CO2 or 55 MtCO2
2019: 58 million short tons CO2 or 53 MtCO2
2020: 74 million short tons CO2 or 67 MtCO2
FIFTH PHASE (2021-2023):* 291 million short tons CO2 or 264 MtCO2
2021: 101 million short tons CO2 or 91 MtCO2
2022: 97 million short tons CO2 or 88 MtCO2
2023: 93 million short tons CO2 or 85 MtCO2
SIXTH PHASE (2024-2026):**
2024: 69 million short tons CO2 or 63 MtCO2
By 2012, verified emissions under RGGI were more than 40% below the cap, so the states tightened the cap in 2014. There was a 2.5% annual reduction factor from 2015 through 2018. The revised regulations extended the 2.5% annual reduction factor through 2020.
The RGGI states further adjusted the caps between 2014 and 2020 to account for banked CO2 allowances from the first and second phases. The annual reduction factor between 2021 and 2030 as set out in the “2017 Model Rule” is ~3% of the 2020 cap.
The caps above include New Jersey from 2020 and Virginia from 2021, but the latter only until 2023.
* These values do not include Pennsylvania.
** These values do not include Pennsylvania nor Virginia.
SECTORS: Fossil fuel electric generating units (i.e., fossil fuel-fired stationary boilers, combustion turbines, or combined cycle systems). Sources (i.e., governmental, institutional, commercial, or industrial structures, installations, plants, buildings, or facilities that emit or have the potential to emit any air pollutant) that include one or more units.
INCLUSION THRESHOLDS: Most RGGI states cover units with capacity equal to or greater than 25 MW.
In New York, since January 2021, the program applies to power plants that have nameplate capacity equal to or above 15 MW and reside at a covered generating unit or near two or more units of the same source.
Point source (power sector)
195* (current control period)
* This value does not include Pennsylvania or Virginia.
Allowance Allocation & Revenue
CO2 allowances issued by each RGGI state are distributed through quarterly auctions. States hold a limited amount in “set-aside” accounts and distribute them according to state-specific regulations.
Of the 93 million 2023 allowances (after the adjustment for banked allowances), 92% were sold at auction and a minimum amount were sold at fixed price. The remainder were either transferred from, retired, or remained in set-aside accounts. No offset allowances were awarded. Additionally, 5 and a half million allowances from the cost containment reserve were sold (see ‘Market Stability Provisions’ section).
USD 7,160 million since the beginning of the program
USD 1,265 million in 2023
Revenues from the quarterly auctions are returned to the RGGI states and have been primarily invested in the following consumer benefit programs: energy efficiency, direct bill assistance, beneficial electrification, GHG abatement, and clean and renewable energy. A report released in June 2023 found that the direct lifetime benefits of RGGI investments made in 2021 include USD 1.2 billion in lifetime energy bill savings and 4.4 million short tons of CO2 (4 MtCO2) emissions avoided.
The distribution of RGGI investments in 2020 was: energy efficiency (51%); direct bill assistance (13%); beneficial electrification* (13%); greenhouse gas abatement** (11%); and clean and renewable energy (4%).
* Programs implementing or facilitating replacement of fossil fuel use with electric power.
** Programs promoting the research and development of advanced energy technologies, the reduction of vehicle miles traveled, GHG reductions in the power generation sector, tree-planting projects designed to increase carbon sequestration, and other initiatives to reduce GHGs.
Flexibility & Linking
Banking is allowed without restrictions. Current regulations include provisions to adjust the cap to address the aggregate bank, so that allowances available for auction are reduced by the number of allowances not used for compliance in previous control periods (see also ‘Cap’ section above). The RGGI states are currently implementing the third adjustment for banked allowances, which runs until 2025. As part of the RGGI review process, RGGI states are considering whether to address or adjust for banked allowances into the future if a bank of surplus allowances remains in circulation after 2025.
Borrowing is not allowed.
The use of offsets is allowed.
QUALITATIVE LIMIT: Currently, the program allows offset credits from three offset types located in RGGI states:
- landfill methane capture and destruction;
- sequestration of carbon due to reforestation, improved forest management, or avoided conversion; and
- avoidance of methane emissions from agricultural manure management operations.
Some states have discontinued specific offset protocols, but all accept offset allowances issued by any participating state. To date, only one offset project (landfill methane capture and destruction) has been approved under RGGI.
QUANTITATIVE LIMIT: 3.3% of an entity’s liability may be covered by offset credits. This share will remain unchanged between 2021 and 2030.
Between the first and the fourth control periods (2009 to 2020), no CO2 offset allowances were deducted. As of the 2022 interim compliance summary report, no CO2 offset allowances had been deducted in the fifth control period (2021 to 2023).
RGGI is a cooperative effort between participating states. Each state establishes an individual CO2 budget trading program based on the RGGI Model Rule. Covered sources in each participating state can surrender allowances issued by any participating state for compliance and participating states use joint auctions.
Compliance
Three years. Compliance is evaluated at the end of each three-year phase (control period). From the third phase, covered entities must surrender allowances corresponding to 50% of their verified emissions in each of the first two years of a phase. They must cover 100% of the remaining allowances at the end of the three-year phase.
As part of the third RGGI review process, RGGI states are considering whether to modify the control period so that covered entities need to surrender allowances for 100% of their regulated emissions every year.
REPORTING FREQUENCY: Quarterly
VERIFICATION: Emission data reports and their underlying data are required to undergo periodic quality assurance and quality control procedures in accordance with US Environmental Protection Authority (EPA) regulations.
FRAMEWORK: Emissions data are recorded in the US EPA’s Clean Air Markets Division database in accordance with state CO2 budget trading program regulations and agency regulations. Provisions are based on the US EPA monitoring provisions. Data are then automatically transferred to the electronic platform of the RGGI CO2 Allowance Tracking System (COATS), which is publicly accessible.
In cases of excess emissions (i.e., if entities do not surrender all required allowances), allowances equivalent to three times the amount of excess emissions must be surrendered. Furthermore, covered entities may also be subject to specific penalties imposed by the RGGI state where it is located.
Market Regulation
MARKET PARTICIPATION: Compliance entities, non-compliance entities (domestic and international), and individuals can participate if they provide a financial security.
MARKET TYPES:
Primary: Most CO2 allowances issued by each RGGI state are distributed through quarterly regional auctions. The RGGI COATS records and tracks data for each state’s CO2 budget trading program, including the transfer of allowances offered for sale by the states and purchased by the winning qualified bidders in the quarterly auctions. Auctions are open to all parties with financial security, with a maximum bid of 25% of the volume on offer per sale. There is no allowance holding limit. Auctions are managed by Enel X.
Secondary: The secondary market for RGGI CO2 allowances comprises the trading of physical allowances and financial derivatives, including futures, forwards, call options, and put options. RGGI COATS facilitates participation in the secondary market and enables the public to view and download RGGI data and CO2 allowance market activity reports. Financial derivatives are traded on the ICE platform.
Potomac Economics, an independent market monitor, monitors the performance and efficiency of the RGGI CO2 allowance auctions and the secondary CO2 allowance market.
LEGAL STATUS OF ALLOWANCES: The RGGI Model Rule specifies that allowances are limited authorizations by the participating state’s regulatory agencies to emit up to one ton of CO2.
AUCTION PRICE FLOOR: USD 2.56 per short ton in 2024, increasing by 2.5% per year (to reflect inflation).
RESERVES: Since 2014, RGGI has operated with a cost containment reserve (CCR), consisting of a number of allowances in addition to the cap held in reserve and only released to the market if certain trigger prices are reached. Beginning in 2021, allowances provided within the CCR are equal to 10% of the regional cap. The trigger price is USD 15.92 in 2024 and increases by 7% per year. It had previously increased by 2.5% annually between the years 2017 and 2020, from a starting value of USD 10.
Triggers: The CCR was triggered in 2014 and 2015, when all 15 million allowances it contained were sold. The CCR was also triggered in the last quarterly auction of 2021, where 3.9 million of the available 11.9 million allowances were sold. It was triggered again the final auction of 2023, with 5.6 million of the 11.2 million CCR units on offer sold.
In 2021, RGGI started implementing an emissions containment reserve (ECR). Under the ECR, allowances are withheld from auction if certain trigger prices are reached, up to an annual withholding limit of 10% of the emission budgets (i.e., the share of each state in the regional cap) of participating states. Allowances withheld will not be re-offered for sale, effectively adjusting the cap downward. In 2024, the trigger price is USD 7.35, increasing by 7% per year. Maine and New Hampshire are not participating in the ECR.
Other Information
Statutory and/or regulatory authority of each RGGI state: Each state implements the program under its particular statutory authority.
Environmental and energy agencies for each RGGI state: Agencies implementing the respective CO2 budget trading programs.
RGGI Inc.: Non-profit cooperative supporting RGGI’s development and implementation. This includes engaging contractors for various tasks such as allowance and emissions tracking, market monitoring, and management of the auctions.
Potomac Economics: Monitors the conduct of market participants in the auctions and in the secondary market to identify indications of anti-competitive conduct.
Enel X: Manages the auctions.
The RGGI participating states periodically review the ETS to consider program successes, impacts, and design elements. The first program review process (known as the 2012 Program Review) was completed in early 2013. A second review process was completed in 2017, resulting in the “2017 Model Rule”. Program reviews were accompanied by stakeholder meetings to facilitate stakeholder engagement and the submission of comments from interested parties.
The RGGI states initiated the third review in summer 2021 to analyze program successes, impacts, potential additional reductions to the cap post-2030, and other design elements. The review is ongoing.