njbia.org · Joanne Degnan · September 8, 2026
Tighter Carbon Trading Rules Proposed for Power Plants Amid Electricity Cost Concerns - NJBIA
# Tighter Carbon Trading Rules Proposed for Power Plants Amid Electricity Cost Concerns
Published September 8
New Jersey is proposing lower limits on carbon emissions from power plants beginning in 2027 – a move expected to increase costs for fossil-fuel generators as the state simultaneously grapples with rising electricity prices.
The Department of Environmental Protection has proposed changes to the state's participation in the Regional Greenhouse Gas Initiative (RGGI), a multistate program that requires large fossil-fuel power plants to purchase allowances for their carbon dioxide emissions. The proposed rules were published in the New Jersey Register on Tuesday.
The proposal would establish New Jersey's allowance budget through 2037, with the state's emissions cap declining more rapidly than under the previous rules. It also would revise the program's price-containment mechanisms and streamline some monitoring, reporting, and recordkeeping requirements for generators.
The changes are needed to bring New Jersey's program into line with RGGI's updated model rule, which takes effect Jan. 1, 2027. The latest model rule was developed during RGGI's third program review, which began in 2021 and was completed in July 2025. New Jersey law requires the state to maintain a greenhouse gas trading program consistent with the RGGI model rule.
“We understand that DEP needs to do this, but it doesn’t address the underlying issue, and we need to instead rethink New Jersey’s participation in RGGI,” said NJBIA Deputy Chief Government Affairs Officer Ray Cantor.
NJBIA has launched a Rethink RGGI campaign that advocates suspending New Jersey's participation in RGGI allowance auctions and replacing them with a flat $7-per-ton carbon fee on all in-state generators.
Under the DEP rule proposal, the most notable change for power generators is the accelerated decline in the regional emissions cap.
RGGI's updated program calls for the regional cap to fall to about 69.8 million tons in 2027, compared with about 75.7 million tons under the previous model rule. The cap then continues to decline through 2037.
The tighter cap is expected to put upward pressure on the price that generators pay for carbon allowances and increase their operating costs.
RGGI Inc. contracted with ICF International to perform technical modeling to evaluate the potential cost impact. Under one of ICF’s modeling scenarios, allowance prices were projected to rise from about $19.40 per ton in 2028 to $28.20 in 2037, measured in 2022 dollars.
Higher allowance costs do not necessarily translate dollar-for-dollar into higher customer bills because electricity prices are affected by many other factors, including fuel costs, demand, transmission and distribution costs, capacity prices, and renewable-energy development.
Nevertheless, the changes are expected to have at least a modest impact on customer bills.
Under modeling projections performed by the Analysis Group Inc., customer bills would rise less than 1% from the impact of RGGI allowance prices if the state did not reinvest RGGI proceeds. The same scenario showed a small increase if proceeds were used only for bill assistance. By contrast, combining bill assistance with energy efficiency and beneficial electrification produced projected bill reductions.
DEP cautioned, however, that the analysis was based on 2024 data and that allowance prices have risen substantially since then. Recent RGGI auctions have cleared prices well above those assumed in earlier modeling.
“Given the integrated nature of the wholesale electricity market and the inclusion of New Jersey load, rate, and reinvestment assumptions, the Department recognizes that these are regional results, and that New Jersey's higher-cost, import-reliant market and its exposure to PJM capacity prices could affect the magnitude of the impact in the state,” the DEP rule proposal said.
DEP said if RGGI proceeds are directed primarily toward direct ratepayer relief, as envisioned under Gov. Mikie Sherrill's executive orders related to energy affordability, it would “cushion ratepayers from cost pressures consistent with prioritization of direct ratepayer relief pursuant to Executive Order No. 1.”
Under the rule proposal, New Jersey would also eliminate the existing Emissions Containment Reserve and adopt a two-tier Cost Containment Reserve. The new reserve would release additional allowances when auction prices reach specified trigger levels.
For 2027, the proposed trigger prices are $19.50 and $29.25 per allowance. They would increase annually, reaching approximately $38.36 and $57.53 by 2037. The mechanism is designed to provide additional allowances when prices become unusually high, but that it is a quantity-limited buffer rather than a hard ceiling on allowance prices.
A virtual public hearing is scheduled for 8:30 a.m. on Thursday, Oct. 15. A link to the virtual public hearing and telephone call-in option will be published on the DEP’s website here. DEP will accept public comments on the proposed rule through Nov. 7.
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