RGGI's Rising Costs: New England Is Entering a Very Different Era

For nearly two decades, RGGI has enjoyed a reputation as a climate-policy success. Emissions are down. States collect hundreds of millions of dollars from carbon auctions. Those revenues finance energy efficiency and climate programs. Supporters point to all three as proof that the program works.

But there's a problem with this success story. RGGI gets credit for emissions reductions driven largely by cheaper natural gas, states celebrate auction revenues that ratepayers ultimately fund, and policymakers assume emissions limits can keep tightening without putting affordability and reliability at risk.

Our new study, RGGI: The Rising Cost of Carbon in New England, challenges those assumptions. And the findings should concern anyone responsible for New England's energy future.

RGGI Didn't Make Natural Gas Cheap

Between 2009 and 2019, emissions from New England's RGGI-covered power plants fell 46 percent. RGGI supporters routinely point to that decline as evidence of the program's effectiveness.

Fully 88 percent of the decline came from reductions in coal, oil, and other non-gas emissions as cheaper natural gas displaced those fuels.

During much of this transition, RGGI allowances sold for approximately $2 per ton. At those prices, the carbon charge provided a weak incentive to switch fuels. Natural gas offered a much stronger incentive: it was cheaper to burn.

RGGI may have contributed to the transition, but the historical decline cannot simply be credited to the program. Much of it reflected a fundamental change in fuel economics.

That fuel-switching opportunity is now largely exhausted. By 2024, natural gas accounted for 99 percent of New England's RGGI-covered fossil generation. The coal and oil generation that made earlier emissions reductions relatively inexpensive has largely disappeared.

RGGI is entering its most restrictive period with the easiest emissions reductions already behind it.

The Revenue Illusion: Ratepayers Foot the Full Bill

RGGI allowances that once sold for a few dollars reached $37.65 per ton in September 2026. At that price, our analysis estimates that RGGI adds $17.18 per megawatt-hour to the cost of electricity produced by a representative New England natural-gas plant.

The natural gas needed to produce that same electricity cost just $13.88 per megawatt-hour.

Think about that. The cost of complying with RGGI now exceeds the cost of the natural gas itself.

Here's how those costs reach consumers.

RGGI states sell carbon allowances to fossil-fuel generators and collect the proceeds. Generators factor those compliance costs into the prices they offer for electricity.

Because fossil-fuel generators set New England's wholesale electricity price most of the time, their carbon compliance costs also raise the prices paid to other generators, including nuclear, hydroelectric, wind, and solar facilities that don't purchase allowances.

Under our study's 2026 assumptions, RGGI is estimated to add $1.49 billion to New England wholesale electricity costs this year. That figure captures the overall market impact of RGGI, including generators' allowance costs and the broader effect on wholesale market-clearing prices.

Under the same assumptions, the six New England states are estimated to collect approximately $785 million in auction proceeds.

But follow the money. The states collect the proceeds, generators recover their costs through electricity prices, and ratepayers ultimately pay the bill. What states celebrate as auction revenue is actually funded by electricity consumers.

States may spend those proceeds on programs they consider worthwhile, but that does not erase the cost of collecting them.

The Real Trouble Begins in 2027

RGGI's rising costs are occurring before the program enters a far more restrictive phase.

Beginning in 2027, RGGI's base allowance cap begins a dramatic contraction. For the ten states covered by the new framework, excluding Virginia, the cap falls 73 percent between 2027 and 2033. By 2037, it will be nearly 90 percent below its 2025 level.

This is not an unintended consequence. Making carbon allowances increasingly scarce and expensive is central to RGGI's design.

New England cannot simply stop generating electricity from natural gas because carbon allowances become more expensive. The region still depends on gas to meet electricity demand, particularly when wind and solar output is limited. Until adequate replacement resources are available, its ability to reduce gas generation in response to higher carbon prices is constrained.

That creates the prospect of generators competing for a rapidly shrinking supply of allowances while electricity demand remains.

Our report stress-tested that possibility. We accounted for emissions reductions from offshore wind projects under construction and assumed the maximum additional allowance supply available through RGGI's cost-containment provisions.

Even with those assumptions, generators face a modeled shortfall of 22 million allowances in 2032.

This is not a forecast. It illustrates what happens if emissions cannot decline fast enough to match the shrinking allowance supply.

The consequences extend well beyond allowance prices. New England must find sufficient replacement generation, reduce electricity demand, or confront the possibility that existing natural-gas plants become increasingly expensive to operate.

RGGI can make fossil generation more costly. It cannot guarantee that dependable replacement generation will be built when needed.

Where Are the Benefits?

RGGI supporters point to the benefits of spending auction proceeds on energy efficiency and other climate initiatives.

Spending money is not the same as delivering results.

New England has historically spent roughly $1 billion annually on electric energy-efficiency programs, with most funding coming from sources other than RGGI.

In Massachusetts, RGGI provided only 11 percent of electric efficiency funding in 2010–2012 and 5 percent in 2013–2015.

The relevant question is how much additional energy savings RGGI funding actually produces beyond what these programs would otherwise achieve.

The cost of achieving additional energy savings has also been rising.

Between 2018 and 2022, the reported cost of acquiring annual electricity savings nearly tripled across New England, from $362 to $979 per megawatt-hour saved. In Massachusetts, the cost nearly quadrupled, reaching $1,404.

Meanwhile, the amount of new annual savings declined.

That raises serious questions about whether the least-expensive efficiency opportunities have already been captured and what additional savings will cost.

RGGI also supports transportation and heating electrification. These programs can reduce emissions outside the power sector, but they increase electricity demand. Their environmental benefits cannot automatically be counted as offsets to higher electricity costs.

Earlier studies projected substantial economic benefits from RGGI investments. But those assessments examined periods when allowance prices were much lower. They do not establish that those benefits still outweigh the full cost imposed on electricity consumers today.

At current carbon prices, ratepayers deserve a fresh accounting of RGGI's costs and the measurable, incremental benefits attributable to the program.

RGGI's Past Is No Guide to Its Future

RGGI's historical record was built during a period of inexpensive allowances, surplus supply, and a shift from coal and oil to cheaper natural gas. Those conditions no longer exist.

New England now faces rising carbon costs, rapidly tightening emissions limits, and continued dependence on natural-gas generation.

The states can continue celebrating auction revenues and the programs those revenues support. But collecting and spending money is not proof that RGGI delivers benefits worth what consumers pay.

The real test is whether RGGI can deliver measurable additional benefits without imposing increasingly severe costs on electricity consumers or putting grid reliability at risk.

That is the accounting New England ratepayers deserve.

Lisa Linowes is the author of RGGI: The Rising Cost of Carbon in New England, published by the Fiscal Alliance Foundation in October 2026.