Virginia's first carbon allowance auction since rejoining a regional climate program generated roughly $259 million, more than double what state officials estimated earlier this year, according to a report published by Americans for Tax Reform this week. The state had been back in the Regional Greenhouse Gas Initiative for less than three months when the September 9 auction took place. The report warns that the unexpected revenue surge signals higher electricity costs for Virginians, as utilities seek to recover more than $1 billion in compliance expenses from customers.
The gap between projections and reality stems primarily from soaring carbon allowance prices, the report finds. When the Virginia Department of Planning and Budget prepared its March estimate, officials anticipated approximately $115.6 million per quarterly auction, or $462.6 million annually, based on a recent allowance price of $19.63. The September auction cleared at $37.65 per allowance, nearly 92% higher than the figure used in state projections. Virginia offered 5.74 million regular allowances and another 1.148 million from its Cost Containment Reserve, with all reserve allowances selling. Meanwhile, Dominion Energy has asked state regulators to reinstate its Rider RGGI charge, calculating a $1.179 billion Virginia revenue requirement covering approximately 20 months of costs related to the carbon trading program. The utility estimates the charge would add $13 monthly to a typical residential customer's bill using 1,000 kilowatt-hours, or $10.36 per month even with proposed mitigation spreading costs over two years.
Governor Abigail Spanberger argues a new RGGI credit will shield Virginians from these expenses, the report notes, with the state budget directing 45% of auction revenue back to certain residential and small-business utility customers. However, the report states that "a rebate does not make the underlying cost disappear," pointing out that power producers must still purchase the allowances and Dominion plans to recover its compliance costs from customers. The 45% credit excludes large businesses, industrial customers, and other major electricity users, covering only residential, small general service, and church customers. According to the report, Dominion's filing reveals that adding carbon allowance costs to Virginia generating units causes those facilities to produce less electricity, with lost generation replaced through market purchases and out-of-state generation.
The mechanism driving these costs reflects RGGI's core design: the program requires covered power plants to buy an allowance for each ton of carbon dioxide they emit. Virginia didn't enter this arrangement accidentally—Spanberger made rejoining RGGI a central element of her energy platform, and the legislature passed bills requiring state regulators to maintain a RGGI-consistent carbon trading program. House Bill 397 passed 63-35 in the House and 21-19 in the Senate before becoming law earlier this year. The price volatility that caught state budget officials off guard may continue, as Virginia's Department of Environmental Quality now updates its carbon trading regulations to align with RGGI's newest model rule, which lowers future emissions budgets. Fewer available allowances can intensify competition for remaining supply, though DEQ acknowledges it can't predict future allowance prices.
The report concludes that Virginia lawmakers should reverse course and repeal the state's RGGI mandate, arguing that "Virginians should not have to pay higher electricity costs so Richmond can collect hundreds of millions of dollars through a carbon tax and then decide how much of that money to give back." With the Commonwealth collecting more than twice the projected amount per auction and Dominion seeking to recover over $1 billion in related costs, the report frames the program as what it called in January a "backdoor carbon tax on electricity." Taxpayers now face navigating a system of carbon charges and government rebates, with the first auction providing what the report describes as a clearer picture of the tax's actual size.