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New RGGI cap will reduce emissions by a third by 2020

Prices to increase by 50% as a result of tighter cap

Washington (11 April 2013)

The decision by the states participating in the Regional Greenhouse Gas Initiative (RGGI) to reduce the scheme’s emissions cap will cut 2020 emissions by about a third compared to business-as-usual, according to predictions by Thomson Reuters Point Carbon, the leading provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets. 

The new cap, which will be between 60 and 69 Mt in 2020, will require up to 47 Mt reductions through 2020, lowering total emissions for the period 6 – 7 percent compared to business-as-usual, according to Thomson Reuters Point Carbon. “That may seem like a modest goal, but it’s actually on par with the reductions required by California’s cap-and-trade program and will be a major challenge for electricity generators in the Northeast”, said Ashley Lawson, senior analyst of the North American market at Thomson Reuters Point Carbon. “Since they have already taken advantage of most fuel switching opportunities, they’ll need to make significant investment in energy efficiency technologies and renewables to stay in compliance.”

In February 2013, RGGI states proposed a 45% reduction in available allowances in their cap-and-trade scheme from 165 million short tons (Mt) to 91 Mt, in 2014. This cap will tighten by 2.5% per year to 78Mt in 2020, a more drastic revision than previously predicted. “In the short term, this reduction prompted a bull run in the secondary market where prices rose by 75% over the last two months, from just under $2.00 - where they had stagnated for over two years - to around $3.50/t”, said Olga Chistyakova, senior analyst of the North American market at Thomson Reuters Point Carbon. She added; “the bullish sentiment was felt in the latest RGGI auction on March 13 where allowances cleared at $2.80/t, some 41% above the minimum price”. The previous 10 auctions had all cleared at the minimum price. Based on this revised long-term emissions forecast, Thomson Reuters Point Carbon predicts a price increase in the short term of 50% from $2.00/t to $3.00/t, though this could increase even more if buyers decide to bank their allowances for the future.

Thomson Reuters Point Carbon estimates that emitters will rely on banked allowances for compliance until 2017, but will need to turn to other expensive means of compliance in the fourth control period (2018-2020).

Currently, the overall bank of allowances held by emitters is estimated at 53Mt, however, to avoid the problem of surplus banked allowances, RGGI will deduct a volume of allowances from the new cap equivalent to the volume of banked allowances and divide this deduction evenly across all years until 2020. This first adjustment will be 47 Mt to account for the bank from the first control period of 2009-2011, according to RGGI officials, and the cap will be adjusted to reflect this beginning in 2014. A second adjustment beginning in 2015 will be at least 14 Mt and could be as much as 68 Mt, divided evenly across the six years 2015 – 2020, according to estimates by Thomson Reuters Point Carbon, but the size of this adjustment will depend on how many allowances market participants buy at auctions this year.

“Although we expect buyers to cool toward RGGI allowances as the realities of oversupply in the market in 2013 return, we see a 50% chance that prices will rise to $4/t on average this year and the remaining 2013 auctions will be oversubscribed and clear between $3/t and $4/t as speculators anticipate the chance of $10 allowances in a few years time”, said Lawson.

The higher allowance prices could stimulate RGGI offset project development, “however we see several obstacles, such as price and geographic limitations, to a thriving RGGI offset market”, said Chistyakova. “We don’t expect RGGI prices to exceed California carbon allowance (CCA) prices, and there may not be a strong incentive to develop new projects solely for the RGGI market. California buyers will outcompete RGGI buyers for the credits under the U.S. forest protocol, the only project type accepted in both markets”.


Note to editors


  • RGGI is a mandatory cap-and-trade system covering the power sector in 9 Northeastern and mid-Atlantic US states that entered into force in 2009.
  • California Carbon Allowances (CCAs) are the tradable units under California’s greenhouse gas cap-and-trade program.
  • Fuel switching, the process of moving from a higher carbon content fuel such as coal, to a lower carbon content fuel, such as natural gas, occurred in RGGI states from 2005 – 2009, helping to lower emissions below the cap.


To see a copy of the analysis, or if you have any questions, please contact: 

Candida Jones

PR Manager, Thomson Reuters Point Carbon

Mob: +44 (0) 777 5754 763

E-mail: candida.jones@thomsonreuters.com


Jake Hemingway

PR Specialist, Thomson Reuters Point Carbon

Phone: +44 (0) 7542 5204

E-mail: jake.hemingway@thomsonreuters.com


Ashley Lawson

Senior Analyst, Thomson Reuters Point Carbon

Mob: + 1 202 460 5702 

E-mail: ashley.lawson@thomsonreuters.com


Olga Chistyakova

Senior Analyst, Thomson Reuters Point Carbon

Mob: +1 301 275 5981

E-mail: Olga.Chistyakova@thomsonreuters.com