Spanberger’s Carbon Tax Sets New Record, Could Add $1 Billion to Electricity Costs in One Year

The impact of the Regional Greenhouse Gas Initiative carbon tax on your electric bill – and everything you buy that depends on electricity – will be double what the General Assembly’s Democrats claimed it would be just a few months ago. The hit on your wallet is just getting started.

Virginia’s first sale of Regional Greenhouse Gas Initiative (RGGI) carbon allowances since 2023 will collect $259 million from electricity producers and allowance market speculators, almost one third as much money as the prior twelve such auctions combined.

It is also double the official fiscal impact statement from the 2026 Assembly session.  Virginia’s electricity producers may pay up to $1 billion in carbon tax this fiscal year and then set about finding ways to pass the cost to customers.

The new clearing price of $37.65 per ton of carbon emissions was announced by the RGGI organization on Friday morning. That is 8 percent higher than the price set in June ($35 per ton) and 69 percent higher than the September 2025 clearing price of $22.25 per allowance. This was the first RGGI quarterly auction to exceed $1 billion in revenue across all the participating states.

The quarterly auction was last Wednesday, the first with Virginia as a participant since December 2023. As of July, large electric power generators in the state must buy and then retire an allowance from RGGI for every ton of emissions from their generators.

Dominion Energy Virginia is the largest consumer of RGGI allowances. When the state was last part of the 11-state compact, the utility added the cost of allowances directly onto its customers’ monthly bills with a rate adjustment clause. It already has a petition at the Virginia State Corporation Commission (SCC) to start doing that again early next year, at $13 per 1,000 kilowatt-hours.

That proposed monthly cost was not based on these higher prices. In its application, Dominion didn’t expect an allowance price of $38 until about 2028. The December auction in three months will probably exceed that level.

In the wake of the June auction’s result of $35 per ton and Dominion’s application to the SCC, the Virginia General Assembly voted to create a refund mechanism on RGGI allowance costs passed along to utility consumers. It will only be available to residential customers and the smallest business customers. Only about 45% of the state’s RGGI proceeds (opponents consider it a carbon tax) will go to rebates.

More than half of the $259 million Virginia will collect on this auction will be used to fund energy conservation projects for low-income homeowners or pay for flood mitigation projects. If the September price holds in the December 2026 auction, Virginia will collect another $216 million from the generators.

Not every generation company having to buy RGGI allowances has a mechanism like Dominion’s to collect it back from customers. And Dominion’s larger customers, including industrial, large retail and data center users, will see no rebates.  A subcommittee of the Energy Commission of Virginia will be meeting September 21 with RGGI as the main agenda item.

In its application at the State Corporation Commission, Dominion has proposed that the state-ordered RGGI rebates begin at the time its proposed rate adjustment clause is also set to start in early 2027. It also has proposed granting the bill credits quarterly.  Since the state treasury will be taking in the RGGI revenue long before that, legislators will be tempted to put the cart before the horse and order rebates in advance.

Virginia first joined RGGI under former Governor Ralph Northam (D) and required the generation firms to buy allowances for three years, 2021 through 2023.  Those twelve auctions cost the utilities and their customers $828 million.  Former Governor Glenn Youngkin (R) ordered the regulation suspended; an action later voided by the courts, but Virginia skipped the next ten auctions.

Governor Abigail Spanberger (D) led the push to return Virginia to the compact, which sets a cap on electricity-related carbon emissions. That cap is set to decline substantially faster in 2027 than was originally planned, as was explained recently by the Department of Environmental Quality in this presentation.

As some of the slides make clear, there is a major gap between the amount of carbon emissions coming from Virginia’s power producers, 33.4 million tons in 2025, and the carbon allowances Virginia has available to sell, 20.4 million allowances in 2027 and 12.8 million by 2030. The tension between supply and demand plays a major role in the cost of allowances.

Expect that the growing gap between supply and demand will produce three outcomes: 1) higher RGGI allowance prices over time, 2) higher Virginia energy imports from non-RGGI states within PJM, and 3) a general but steady rise in all prices in PJM’s day-ahead and spot energy markets because RGGI-covered generation costs will set the price for everybody.

The DEQ presentation also explains that the amended state regulation to implement the more stringent RGGI regime, adopted by the other states before Virginia rejoined, will be done by the Spanberger administration with no public comment period or even a vote by the Air Pollution Control Board. The 2026 General Assembly suspended the normal rules for its adoption.

Key Takeaways:

• The first auction since Virginia rejoined RGGI generated $259 million from Virginia power producers — roughly twice the amount anticipated in the General Assembly’s fiscal impact estimate released a few months ago.
• RGGI costs appear poised to rise, not stabilize. Allowances cleared at $37.65 per ton, up 8% from June and 69% from September 2025. Tightening supply could mean higher allowance prices, more imported electricity, and upward pressure on PJM wholesale power prices.
• The rebate program does not eliminate the cost; it redistributes part of it. Residential customers and the smallest businesses may receive rebates, but only about 45% of Virginia’s RGGI proceeds are designated for them. Large businesses, industrial customers, and data centers receive no rebates, and those higher electricity costs can ultimately show up in the prices consumers pay for goods and services.

Key Quote:

“The impact of the Regional Greenhouse Gas Initiative carbon tax on your electric bill – and everything you buy which depends on electricity – will be double what the General Assembly’s Democrats claimed it would be just a few months ago. The hit on your wallet is just getting started.”

Steve Haner
Jefferson Forum

Steve Haner is the Senior Fellow for Energy and the Environment at the Jefferson Forum and may be reached at Steve@thomasjeffersoninst.org