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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 ~76% of the state’s GHG emissions.
The program covers fuel combustion emissions in the mining, power, buildings, transport, industrial, agriculture, and forestry sectors, as well as industrial process emissions of about 400 covered facilities. Fuel use in buildings, transportation, and in agricultural, forestry, and fishing operations is covered upstream at the fuel supplier. 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.
2024 marked significant progress towards the adoption of amendments to the California “Cap-and-Trade Regulation”. The purpose of the proposed 2030 and 2045 climate targets is to reduce anthropogenic GHG emissions to 48% below 1990 levels by 2030 and 85% below by 2045, and to ensure that the program’s design features continue to support the achievement of these goals. The scope of amendments is expected to include the reduction of the cap over the 2026 to 2045 period, a one-time increase in the prices of the cost containment provisions, measures to enhance market oversight, base offset provisions on the latest information and science, and update allowance allocation rules, among other things.
Public workshops seeking feedback on the amendments started in 2023 and continued in 2024. In April 2024, CARB released the Standardized Regulatory Impact Assessment (SRIA), which provided an initial economic evaluation of potential changes to the Cap-and-Trade Program.
In terms of international collaboration, California released a joint statement in March 2024 with Québec and Washington expressing interest in exploring program linkage.
Emissions & Targets
371.1 MtCO2e (2022)
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 to 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, 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%, 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 reformulatedblendstock 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 greater than or equal to 25,000 tCO2e per year. All electricity imported from specified sources connected to a specific generator with emissions greater than or equal to 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 less than 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, transport, agriculture, and forestry fuel use); point source (mining and extractives, 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 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 from 2018 to 2024, waste-to-energy facilities.
FREE ALLOCATION WITH CONSIGNMENT: Electrical distribution utilities and natural gas suppliers receive free allocation on behalf of their ratepayers.** These 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: ~65% of total California-issued vintage 2024 allowances made available through auction in 2024, which included allowances owned by CARB (~36%) and allowances consigned to auction by utilities (~29%).
- Auction volume: 181,214,582 (2024 vintage) 24,060,000 for advance auction (2027 vintage).
- Share of the 2024 cap auctioned as vintage 2024 CARB-owned allowances so far: 46%
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.
* See Section 95891(c) of the Regulation for a minor exception.
** See Section 95892 and Section 95893 of the Regulation for further details on the approach to free allocations for electrical distribution utilities and natural gas suppliers, respectively.
USD 31.38 billion since beginning of program
USD 5.13 billion* in FY 2023-2024
* Does not include revenues from the auction of consigned allowances.
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 November 2023, USD 11 billion had been invested in 578,568 projects, with expected GHG reductions of 109.2 MtCO2e. Over USD 8.1 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 the following 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, 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: The share of offsets that can be used by an entity to fulfill its 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 fulfill 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.
In November 2022, California entities surrendered ~2.2 million offset credits for a portion of 2021 emissions. In November 2023, California entities surrendered ~2 million offset credits for a portion of 2022 emissions. In November 2024, California entities surrendered an additional 22 million credits for the remainder of their emissions during the fourth compliance period. In November 2024, Quebec entities surrendered 13.3 million California-issued offset credits for emissions during the fourth compliance period. Of the 35.2 million credits surrendered in 2024, 26.5 million were from US forest offset projects and 5.3 million from mine methane capture projects.
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. In March and September, 2024 joint statements from the governments of Québec, California, and Washington affirmed their commitment to explore potential linkage.
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: Annual
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 at a relevant compliance 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
Instrument type: Price-based instrument
Functioning: The auction reserve price is set at USD 25.87 and CAD 24.73 (USD 18.06) per allowance in 2025.
It was initially established at USD 10.00 for the auction in 2012, and it increases annually by 5% plus inflation, as measured by the Consumer Price Index. The auction reserve price for each joint auction with Québec is determined using the minimum prices set annually by California in USD in accordance with Section 95911 of the California Cap-and-Trade Regulation and by Québec in CAD on accordance with Article 49 of the “Regulation respecting a cap-and-trade system for greenhouse gas emission allowances” (Québec Regulation). To manage multiple currencies, an Auction Exchange Rate is determined prior to each joint auction. The Auction Reserve Price for a joint auction is then determined as the higher of the Annual Auction Reserve Prices established in USD and CAD after applying the established Auction Exchange Rate (USD to CAD FX Rate).
ALLOWANCE PRICE CONTAINMENT RESERVE (APCR)
Instrument type: Price-based instrument
Functioning: In 2025, the two APCR tiers are set at USD 60.47 and USD 77.70. Tier prices increase each year by 5% plus inflation, as measured by the Consumer Price Index.
At the start of the program, about 4.9% of allowances from the 2013 to 2020 budgets were placed in an APCR. Prior to amendments mandated by AB 398 in 2017, these allowances were spread across three tiers. Pursuant to AB 398, from 2021 onward, these allowances have been moved into two price tiers and a price ceiling. Currently, there are approximately 66.8 million and 89.5 million allowances in the Tier 1 and 2 reserves, respectively.
Although no APCR sale has been held so far, 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.
ALLOWANCE PRICE CEILING
Instrument type: Price-based instrument
Functioning: In 2025, the price ceiling is set at USD 94.92. The price ceiling increases each year by 5% plus inflation, as measured by the Consumer Price Index.
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. Currently, there are approximately 77.7 million allowances in the Price Ceiling Account.
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 to 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. Virginia joined RGGI in 2021 but left in 2023.*
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.
* A Virgina county circuit court deemed the state’s RGGI exit unlawful in November 2024, casting uncertainty over the state’s official withdrawal.
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.
In September 2024, the RGGI states released a new exploratory scenario with a higher annual base cap reduction from 2027 to 2033, aligned with a zero-by-2035 cap trajectory, with the trajectory decline lessening to a zero-by-2040 decline rate between 2033 and 2037. The scenario also proposed increasing the cost containment reserve (CCR) to 10.66 MtCO2 (11.75 million short tons CO2) annually, with an additional CCR of the same size available at a higher trigger price.
The RGGI states received stakeholder feedback on the latest exploratory scenario in October 2024, and Model Rule updates are ongoing.
Virginia repealed its CO2 Budget Trading Program following executive action started by the state’s administration in 2022 and thus stopped participating in RGGI in December 2023. However, a Virgina county circuit court in November 2024 deemed the repeal unlawful by, casting uncertainty over the state’s official withdrawal.
Emissions & Targets
717.7 MtCO2e (2022)*
* 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.
Average auction price: USD 18.06
Size & Phases
FIRST PHASE: Three years (2009 to 2011)
SECOND PHASE: Three years (2012 to 2014)
THIRD PHASE: Three years (2015 to 2017)
FOURTH PHASE: Three years (2018 to 2020)
FIFTH PHASE: Three years (2021 to 2023)
SIXTH PHASE: Three years (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”.
PHASE 1: 564 million short tons CO2 or 512 MtCO2 (188 million short tons CO2 or 171 MtCO2 per year)
PHASE 2: 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
PHASE 3: 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
PHASE 4: 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
PHASE 5:* 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
PHASE 6:**
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 include 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)
222 (current control period)
Allowance Allocation & Revenue
Auctioning: 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 69.4 million 2024 allowances (after the adjustment for banked allowances), 91% were sold at auction. The remainder were either transferred from state set-aside accounts, retired, or remained in set-aside accounts. No offset allowances were awarded. Additionally, 8.4 million allowances were sold from the cost containment reserve (see ‘Market Stability Provisions’ section).
USD 8.6 billion since the beginning of the program
USD 1.5 billion in 2024
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 July 2024 found that the direct lifetime benefits of RGGI investments made in 2022 are projected to avoid 7.5 million short tons of CO2 (6.8 MtCO2) and return approximately USD 1.8 billion in lifetime energy bill savings to 246,000 households and over 2,600 businesses that participated in programs funded by RGGI proceeds.
The distribution of RGGI investments in 2022 was: energy efficiency (49%); direct bill assistance (21%); beneficial electrification* (14%); clean and renewable energy (7%); and GHG abatement and climate change adaptation** (3%).
* Programs implementing or facilitating replacement of fossil fuel use with electric power.
** Diverse programs, including the promotion of technology, research, and development programs, climate change policy research, coastal resilience, and flood preparedness programs.
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, the 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.
53,506 offset allowances have been awardedduring RGGI’s time of operation, all of which were from a 2017 landfill methane capture and destruction project.
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.
State-level ETS: Massachusetts Limits on Emissions from Electricity Generators
State-level ETSs are also being considered or developed in the following RGGI states: Maryland, New York, Vermont
Domestic crediting mechanism: RGGI Crediting Mechanism
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.
MONITORING: Operators must comply with all monitoring and recordkeeping requirements laid out in the Model Rule.
REPORTING: CO2 monitoring reports must be submitted 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 by the deadline), 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 short ton of CO2.
AUCTION PRICE FLOOR
Instrument type: Price-based instrument
Functioning: Auctions have a price floor of USD 2.62 per short ton in 2025, increasing by 2.5% per year (to reflect inflation).
COST CONTAINMENT RESERVE (CCR)
Instrument type: Price-based instrument
Functioning: Since 2014, RGGI has operated with a 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 17.03 in 2025 and increases by 7% per year. It had previously increased by 2.5% annually between 2017 and 2020, from a starting value of USD 10.
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 in the final auction of 2023, with 5.6 million of the 11.2 million CCR units on offer sold. The CCR was also triggered in March 2024, when all 8.4 million allowances it contained were sold.
EMISSIONS CONTAINMENT RESERVE (ECR)
INSTRUMENT TYPE: Price-based instrument
Functioning: In 2021, RGGI started implementing an ECR, which withholds allowances 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 2025, the trigger price is USD 7.86, 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 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.