Virginia is scheduled to formally reenter the Regional Greenhouse Gas Initiative (RGGI) on July 1, after newly elected Virginia Governor Abigail Spanberger signed a budget bill including a provision mandating the state rejoin the program. Virginia’s previous governor, Governor Glenn Youngkin, withdrew the state’s participation in 2023 when he was governor. Following the commonwealth’s return to the program, Dominion Energy filed a request with the State Corporation Commission to reinstate “Rider RGGI,” a fee to cover the cost of Virginia’s participation. It is projected that residential customer bills could increase by about $13 per month for customers using 1,000 kilowatt-hours per month during the March 2027 through February 2028 rate year under the proposed carbon-trading rider. Spreading some of the recovery costs over two years would lower the projected monthly impact to about $10.36. The cost increase depends on auction prices for allowances that permit utilities to emit greenhouse gases.
The RGGI is a regional cap-and-trade program that requires power plants to purchase carbon allowances through quarterly auctions, which allow them to emit greenhouse gases. It includes a carbon tax and a cap-and-trade mechanism. The carbon tax is a price per unit of carbon dioxide emissions. The cap-and-trade mechanism sets the total level of permissible emissions for participating states and allows power plants to trade corresponding emissions allowances under that overall cap. Power plants must purchase one allowance for each short ton of emissions. The emissions cap for power plants declines each year, making it harder to meet and potentially increasing the auction price. The Rider RGGI Virginians were required to pay per month until Governor Youngkin left the RGGI in 2023; the amount was $4.40.
Virginia is set to participate in the September and December 2026 allowance auctions. Utilities can request to recover those compliance costs through customer rate increases. The most recent RGGI auction cleared around $35 per ton, significantly higher than prices during Virginia’s earlier participation from January 2021, when then-Governor Ralph Northam joined the program, to December 2023, when Governor Youngkin withdrew from the program.
Virginia generated about $825.8 million in RGGI auction proceeds from 2021 through 2023. Of that, $413.9 million went toward low-income energy-efficiency programs through the Department of Housing and Community Development, and $372.5 million supported community flood preparedness programs through the Department of Conservation and Recreation.
Power plants in Virginia are also subject to carbon-free electricity mandates under the Virginia Clean Economy Act (VCEA) that mandates that the state’s primary utility, Dominion Energy, deliver 100% carbon-free electricity by 2045. So layering RGGI on top of those costs will further increase electricity costs. Virginia’s renewed participation in RGGI assumes the state never left, subjecting it to much tighter emissions caps that mandate a 61% reduction in carbon dioxide emissions by 2030 and a 92% reduction by 2037 from 2027 levels. Its return to RGGI could create allowance supply shortages in the future, as participating power plants anticipate higher demand for allowances driven by the emissions generated from power plants associated with artificial intelligence (AI) data centers. Virginia and Texas currently lead all states in housing data centers. Virginia’s data center boom has generated nearly $40 billion in economic output and contributed to lower residential property tax rates in data center hubs.
Dominion projects that Virginia’s electricity demand will grow by 5% annually starting in 2025 and double by 2045 – mostly driven by data center demand. Most new energy sources in Virginia would need to be emissions-free, and some existing fossil fuel sources would need to be replaced to meet the emissions-reduction target. Dominion concluded in its 2025 annual report that fully retiring fossil fuels before 2045 would be prohibitively costly and impact grid reliability. A state-commissioned study confirms that fossil fuels would need to remain a critical component of Virginia’s power mix. Under RGGI, reducing emissions or controlling and capturing them will drive electricity prices higher.
Further, sources considered emission-free, such as wind and solar, are intermittent and weather-dependent. Maintaining reliability under renewable-heavy systems requires significant investments in transmission infrastructure and backup generation. Estimates indicate that to meet the growing clean electricity demand for 100% clean electricity by 2035 and a zero-emissions economy by 2050, transmission systems will need to expand by 60% by 2030 and could triple by 2050. Wind and solar, however, cannot provide the dispatchable power needed to sustain hospitals, military installations, manufacturing, and data center operations 24/7.
Conclusion
Under the new Virginia Governor, Spanberger, the state will be rejoining RGGI, effective July 1. Dominion Energy, Virginia’s primary utility, has filed for a rate increase that is expected to add about $13 per month to a typical residential electricity bill—up from about $4 or $5 a month when Virginia was previously in the program from 2021 to 2023. Ten other states are currently members of RGGI, and many of them have near the highest electricity prices in the nation, including Massachusetts, New York, New Jersey, Connecticut, and Rhode Island. Virginia, known as Data Center Alley, is also facing rising electricity demand, which Dominion estimates will grow 5% annually and double by 2040, adding to the difficulty of meeting the RGGI emissions reduction targets.
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