RGGI Third Program Review Significantly Strengthens GHG Targets, Expands Cost Containment Reserve, Eliminates Offsets, and Makes Other Changes to RGGI Model Rule

On July 3, 2025, the Regional Greenhouse Gas Initiative (RGGI) completed and released its Third Program Review and an updated CO2 Budget Trading Program Model Rule. RGGI evaluated numerous scenarios during the multi-year program review process, ultimately selecting a scenario that aggressively tightens the RGGI GHG budget from 2027 to 2033, with a more moderate reduction thereafter.

Key Takeaways on the 2025 Model Rule

• Strengthens the regional CO₂ emissions cap through 2037, with a high rate of annual reduction of the budget from 2027 to 2033, then a lower rate of reduction until 2037;
• Modifies the program structure by adding a second, higher priced tier to the Cost Containment Reserve, replacing the Emissions Containment Reserve with a universal minimum auction price, and removing offset allowances; and
• Requires participating states to amend their regulations to meet the 2025 Model Rule requirements by January 1, 2027.

RGGI Background

RGGI is an organization comprised of 11 New England and Mid-Atlantic states – Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont – formed to incentivize a gradual, but consistent, reduction in power sector greenhouse gas emissions by encouraging energy efficient operations and increased reliance on renewable energy. Since its inception, RGGI states have worked together to establish a mandatory market-based greenhouse gas emissions trading system (the “Program”): capping power sector CO₂ emissions, auctioning and trading emission allowances to interested entities, and tracking allowance and emissions data in each state. The resulting proceeds are then reinvested at the state’s discretion, often in renewable energy and energy efficiency programs.

Each participating state committed to implementing independent CO₂ Budget Trading Program statutes and regulations that align with RGGI’s Model Rule. RGGI published its first Model Rule in 2006 and has periodically conducted reviews, analyzing the Program’s benefits to date, as well as its structure and design, before updating the Program’s goals  and the Model Rule’s content. . RGGI initiated the most recent Program Review in September 2021 and, after consideration of five cap modeling scenarios and providing opportunities for public engagement, published the updated Model Rule on July 3, 2025 (the “2025 Model Rule”). RGGI has committed to initiating a Fourth Program Review by 2028.

Program Summary

The RGGI Program has three essential elements:

• CO₂ Cap. RGGI establishes an annual regional budget on CO₂ emissions by the ton; a single ton equals one emission allowance. Each participating state places an allowance limit for the power sector within its jurisdiction to meet the total agreed-upon regional cap. Fossil Fuel-fired power plants that meet Program criteria may not exceed their allowances for CO₂ emissions. RGGI state Program regulations vary slightly in their definition of covered sources. Although the goal is for each eligible entity to meet the annual allowances, RGGI sets three-year compliance periods to provide flexibility to CO₂ source entities. Some states implement interim compliance periods to ensure that eligible sources are on track to comply with the three-year period. Over time, the regional cap – and the state and source entity contributions to that cap – will decline, resulting in a gradual reduction in CO₂ emissions in a way that should not disrupt the industry.
• Auction of Allowances. CO₂ allowances are available at auction every quarter. At each quarterly auction, all allowances are sold at the same price. A supply and demand analysis of the market determines the price. RGGI has also implemented auction mechanisms to prevent both the undervaluation of allowances and grid impact if demand outpaces the annual cap. Once an entity purchases an allowance, it may either apply the allowance to its own emissions or resell the allowance to another entity.

RGGI has created a platform, the CO₂ Allowance Tracking System (COATS), which allows account holders to receive, view, and trade allowances.

• Tracking and Compliance. The States’ CO₂ Budget Trading Program regulations each include provisions requiring CO₂ source entities to adequately track and report emissions data with the EPA’s Clean Air Markets Program Data (CAMPD) database. CAMPD data is automatically transferred to the COATS platform automatically. Program-covered entities must also track their allowance usage in the COATS platform. The RGGI states’ environmental regulatory agencies use that data to compare a source’s actual CO₂ emissions with their allowances to ensure ultimate compliance with the state and regional caps.

RGG makes aggregate, statewide, and source-specific emissions reports publicly accessible and uses the CAMPD and COATS data to inform Program Review and determine emissions targets.

Changes to Model Rule in Third Program Review

According to the participating states, the 2025 Model Rule is designed to provide stability and certainty to market participants, including power producers and generators of new electricity resources; increase price protection for consumers, investing proceeds of the CO2 allowances into programs that lower electricity bills and support local communities; and maintain long-term commitments to energy affordability, public health, and the environment. However, the states’ changes to the Model Rule will likely increase pricing pressures, particularly as the Trump administration opposes new offshore wind development (a planned source of new renewable generation for many RGGI states) and recent legislation is eliminating many renewable energy tax credits, which may hinder the deployment of new renewable resources to the grid in RGGI states.

Overall, the 2025 Model Rule aims to strengthen the regional CO₂ emissions cap through 2037 and establish new methods to maintain energy affordability. Major changes to the 2025 Model Rule include:

• Reduction of the Regional CO₂ Emissions Cap & Allowances. RGGI considered five emission reduction scenarios during the Third Program Review and adopted one of the more aggressive proposals. The new regional emissions cap plan calls for a high rate of annual reduction of the budget from 2027 to 2033, then a lower rate of reduction until 2037.

The 2017 Model Rule, the next most recent iteration of the Rule, established a regional emissions cap to decrease available allowances by around 10 million tons of CO₂ between 2025 and 2030, starting at around 80 million tons and remaining at a total cap of around 70 million tons thereafter. This 2025 Model Rule drops allowances to 69.8 million tons by 2027 and continues decreasing annually by an additional 10.5% of the 2025 budget (8.5 million tons on average) through 2033. From 2033 to 2037, the cap’s steep decline softens, reducing allowances by 3% of the 2025 budget (2.3 million tons on average) every year.

• Revision of Cost Containment Reserve (CCR). The 2025 Model Rule also revises the existing CCR structure to protect the system against cost volatility. The CCR is a reserve of allowances only made available if auction clearing prices at an allowance auction exceed a predetermined trigger price, i.e., if demand is higher than anticipated. This new Model Rule both increases the size of the CCR and implements a second tier of CCR allowances, which becomes available at a higher trigger price than the first.
• Replacement of Emissions Containment Reserve (ECR) with Increased Minimum Reserve Price (MRP). The 2025 Model Rule increases the MRP, the minimum price at which allowances may be sold at auction. The previous Rule included an ECR, a reserve of allowances that could be withheld if the auction clearing price fell below a predetermined trigger price. The 2025 Model Rule removes the ECR and instead uses an increased MRP matching the existing ECR trigger price trajectory. As of 2027, instead of withholding a set number of allowances from being sold below the minimum price, no allowances will be sold below that price.
• Removal of Offset Allowances. The 2025 Model Rule further removes offset allowances, which some state Programs had made available for entities that reduce emissions outside of the Program as an alternative way to comply with the RGGI requirements. While entities may continue using pre-existing offset allowances, they will not have access to any new ones.
• Unsold Offsets Removed, not Reserved. Auctions are held quarterly, with the division of allowances at each totaling the annual cap. Moving forward, participating states pledged to pull any outstanding allowances that were not sold at auction. These allowances will not be reserved for later auctions in the same calendar year, resulting in an annual emission rate lower than the cap.

Next Steps for Interested Entities

Publication of the Third Review and updated Model Rule do not create any immediate obligations for source entities. Participating states must implement or amend existing regulations to meet the updated Program Model Rule requirements by January 1, 2027. We anticipate that the 10 active participants – Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont – will initiate the legislative process in the coming months. Potentially affected entities should monitor developments in their states’ programs to understand new requirements for compliance and identify opportunities for engagement with state regulators and legislators.

RGGI’s commitment to begin a Fourth Program Review by 2028, to evaluate performance of the 2025 Model Rule, provides an opportunity for stakeholders to engage with the participating states and provide comments on considered paths and foreseeable impacts.

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