The East Coast’s signature climate policy is poised to spike electricity prices just as governors are desperate to lower them.
A carbon-trading program that covers power plants across 10 mostly blue states from Maine to Maryland is undergoing a price shock. The cost for permission to burn fossil fuels has roughly doubled over the last two months and hit a record high this week — foreshadowing potentially billions of dollars in extra energy costs.
The cause, experts and observers say, is Virginia’s looming reentry to the Regional Greenhouse Gas Initiative later this year — bringing the world’s densest concentration of power-hungry data centers into a system without enough renewable energy to feed them.
The move could add several dollars each month to home electricity bills across the northeast and mid-Atlantic. The exact impact will vary across utilities — which are still calculating the new costs — but the political consequences are starting to come into focus. Republicans aim to use the hike to regain the upper hand on energy politics.
“Power bills are going up. That’s the bottom line,” said Virginia House Republican Leader Terry Kilgore, who argued the new costs validate longstanding GOP criticism of the cap-and-trade program. “Democrats ran on affordability, and they ignored every chance to lower bills this past [legislative] session — and then voted to add this back to power bills. That’s the opposite of making life more affordable.”
Democrats for months have hammered the Trump administration over rising energy prices, and two new Democratic governors, Abigail Spanberger in Virginia and Mikie Sherrill in New Jersey, romped to victory last year by focusing on that issue.
Prices have continued to rise since then, driven by the war in Iran and the continued boom of AI data centers. Now, the record-high costs of the northeast’s cap-and-trade program promises to push power bills even higher — and put even more pressure on politicians.
“This additional cost getting added to consumers’ bills is going to get the attention of the political class,” said Todd Snitchler, president of the Electric Power Supply Association, which represents power plant owners.
A rise in prices for power plants could cause headaches for Democratic governors across the region, including Sherrill and Maryland’s Wes Moore, who both promised to cut energy costs.
It could prove to be an especially big challenge for Spanberger. The Virginia governor has said that rejoining the Regional Greenhouse Gas Initiative — which her Republican predecessor Glenn Youngkin quit in 2023 — would raise money for energy efficiency and flood protection, and cut costs overall.
“Withdrawing from RGGI did not lower energy costs,” she said in January. “In fact, the opposite happened — it just took money out of Virginia’s pocket.”
The Spanberger administration pointed to Virginia’s three-year hiatus from the program to argue the state lost opportunities to boost renewables and make homes more efficient — long-term investments that could have eased the state’s energy crunch. Virginia also uses RGGI funding for flood resilience, which can yield $6 in savings for every $1 spent.
“The previous administration’s unlawful decision to withdraw from this multi-state program took hundreds of millions of dollars away from communities across Virginia,” Spanberger’s press secretary Jack Bledsoe said in a statement, contrasting that with a suite of bipartisan bills the governor signed this year to boost carbon-free power generation. “Virginians deserve leaders who will do more to contend with these high costs.”
Overshadowing the climate program, too, is the worldwide spike in fossil fuel prices caused by the U.S. and Israel’s war in Iran.
“The price of natural gas is going to have much more of an impact on the electricity price than RGGI,” said Brian Murray, who helped design the system and is now at Duke University.
But Spanberger already is getting pushback in Richmond.
“It’s a bait and switch,” said Delegate Michael Webert, the No. 3 Republican in the Virginia House. “It’s essentially a hidden tax. It raises the cost of energy.”
‘How RGGI is supposed to work’
Environmentalists say making fossil fuels more expensive isn’t a flaw of the cap-and-trade program. It’s the central purpose of the Regional Greenhouse Gas Initiative, or RGGI for short.
“This is how RGGI is supposed to work,” said Nate Benforado, a senior attorney at the Southern Environmental Law Center, which fought the effort by Youngkin, the former Virginia governor, to exit the market.
The program is designed to make power generators account for the harms of burning fossil fuels, he said, and to gradually reduce customers’ exposure to volatile fuel prices, which have been one of the biggest drivers behind rising power bills.
RGGI is the oldest greenhouse gas cap-and-trade system in the U.S., limiting emissions from power plants and auctioning off permits to pollute since 2008. Power sector emissions in states covered by the program have declined 46 percent, and nearly $11 billion has been raised over the last 18 years, according to the system’s own figures.
But environmentalists often have bemoaned the fact that prices in RGGI weren’t high enough to spur aggressive investments in clean energy. Now, they might be getting their wish.
Prices for permission to emit a ton of carbon — known as allowances — have nearly doubled in the past few weeks on a secondary market, rising to $52 as of Tuesday, according to one public exchange. They’d dropped down to about $46 on Thursday.
The allowances are created and sold by the member states — Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. In March, they sold credits at a quarterly auction for $25 per allowance, which covers one ton of carbon dioxide emissions.
Supporters of RGGI tout the proceeds from these auctions as helping states raise money that can be used for bill relief along with investments in energy efficiency and other clean energy priorities.
Sherrill of New Jersey, who signed an executive order to freeze utility rates during her inaugural address, is planning to use money from RGGI auctions to offset increases to other parts of ratepayers’ bills.
“Gov. Sherrill took historic action on Day One to freeze rate hikes, and has moved incredibly quickly to increase supply,” Darwin Pham, a spokesperson for the governor, said in an email. “The governor will continue to use every tool possible to keep energy costs in check.”
New York’s plan to spend RGGI funds includes a provision aimed at helping consumers. It says that a third of revenues collected when prices in the auction exceed about $20 per ton will be used to reduce the costs of other ratepayer-funded clean energy programs, Hochul spokesperson Ken Lovett said when asked about the current rise in prices.
This will help manage costs, he said.
“The Governor had made clear that energy rates are too high,” Lovett said. “We will continue monitoring the market.”
Moore spokesperson Rhyan Lake said the Maryland governor is “laser-focused on lowering bills while keeping the grid reliable” — and declared that RGGI is a “proven investment strategy” to do both, pointing to the hundreds of millions of dollars it enables Maryland to spend on energy efficiency, renewables and direct utility rebates.
Virginia’s reentry sparks a ‘feeding frenzy’
As Virginia prepares to reenter the market, the volume of allowances being traded and the prices for allowances have spiked.
In the past week, roughly $1.3 billion in trades were made on the Intercontinental Exchange’s secondary market, according to POLITICO calculations.
Those trades involved about 30 million allowances with prices hovering around $50 in the last few days; by comparison, in the last three months of 2025, 206 million allowances were traded at about half that price on average.
Andre Templeman, principal of Alpha Inception, an energy market consulting firm, said there has been a “feeding frenzy” for allowances to accommodate Virginia power plants.
The costs of the allowances ultimately are passed onto ratepayers in participating states — and could drive an increase in power bills. This could add between $10 and $20 per megawatt hour to wholesale electricity prices in the region, said Dan Dolan, president of the New England Power Generators Association.
“This is a significant premium that would be added to already higher prices,” he said.
Dominion Energy, Virginia’s largest utility, said it would detail in June how much RGGI would add to monthly bills. The last time Virginia was in the program, and the price to emit carbon was topping out around $15 per ton, the utility had charged ratepayers around $2 to $4 per month for it.
There is also renewed focus on a nightmare scenario for climate hawks, where the rising compliance costs could lead to increased emissions if utilities in RGGI states buy cheaper power from coal and gas-fired power plants in other states that don’t have to pay for allowances.
RGGI’s price premium is essentially subsidizing coal plants outside the region by making their power more economically competitive, said Stephen Haner, a senior fellow at the Thomas Jefferson Institute for Public Policy, a free-market think tank.
And because of how the region’s electricity market works, higher RGGI costs would allow power plants as far as Ohio and Tennessee to command higher prices for the electricity they send to the grid.
“It’s a real bonanza, financially, for those guys,” Haner said.
Templeman of Alpha Inception has told clients that allowance prices are too high and he warned that regulators, RGGI states or the Trump administration might soon step in. He recently began releasing an estimate of the likely impact to ratepayers. When prices hit $58 during one trading day, he found that regionwide costs would be well north of $10 billion and include higher prices in states that don’t even participate in the program.
“RGGI has always had this bad market design, but at low prices it wasn’t evident it was a bad market design,” Templeman said. Now, he said the problems are “horribly obvious.” Templeman has clients who may be shorting the allowances, which means they want prices to come down, and wrote a paper for a client with a handful of ideas about how to attack the program.
Other market analysts are “bullish” on RGGI prices, although some don’t expect the June auction to be as high as the current futures prices.
“The main reason we think the RGGI program isn’t in any danger is the ability for states to use revenue for direct bill assistance,” said Paul Greenough, a senior vice president with advisory firm Capstone. He suggested states have plenty of other things to blame for rising energy costs — including federal opposition to renewable energy.
“All this serves to protect RGGI and frankly the revenues at the center of the program,” he added.
Additional allowances available to cushion high costs will be available starting in 2027. RGGI states also have committed to another review of the program in 2028, which could look at cost concerns. And last year, RGGI states agreed to further ratchet down emissions under the program.
Republicans in some RGGI states have pushed previously to exit the program — and high prices could give those efforts additional momentum.
Eight of the RGGI states have gubernatorial elections this year, including New York, which could help refocus attention on the program.
In New Jersey, a bill recently was introduced to pull the state out of RGGI, the latest chapter in New Jersey’s on-again, off-again relationship with the program. Former Democratic Gov. Phil Murphy put the state back into RGGI after his predecessor, Republican Gov. Chris Christie, pulled out.
So far, though, states seem to be playing a shell game with responsibility for RGGI.
Officials at agencies in multiple states that sit on the governing board of RGGI, including Connecticut, New Jersey, Massachusetts and Vermont, referred questions to RGGI, which then declined to comment. Officials in Maine, New Hampshire, Delaware and Rhode Island did not respond to multiple requests for comment.
Nassau County Executive Bruce Blakeman, the Republican gubernatorial candidate in New York, said he’d withdraw the state from RGGI if he beats Hochul.
“Part of the green energy scam? That’s over when I become governor,” Blakeman said Monday in Albany when asked about his position on the program.
