By William Opalka and Rory Sweeney

The Regional Greenhouse Gas Initiative reported another lackluster carbon allowance auction last week, bolstering calls by Massachusetts and others for more aggressive cuts in the compact’s emission caps.

But as the program conducts its triennial review of how it should operate in 2020 and beyond, Maryland is raising the threat it could pull out, as New Jersey did in 2011.

RGGI reported it sold 14.9 million CO₂ allowances at $4.54 each Sept. 7, nearly identical to the prices of the second auction this year of $4.53 and more than 70 cents lower than six months ago.

From 2.5% to 5%?

In 2014, RGGI set an emissions cap of 91 million tons that declines by 2.5% annually to 78.2 million tons by 2020. Environmental advocates and Massachusetts officials have called for doubling the rate of decrease to 5% annually. But Maryland’s top environmental regulator says that is too strict for his state.

Most RGGI members are part of ISO-NE, so any financial burdens created by the pact’s restrictions affect all of their power generators — and subsequently the prices they offer to supply power — equally.

Power plants in Maryland and Delaware, however, sell into the PJM markets and compete against generators that aren’t impacted by the same restrictions in states such as Pennsylvania, Ohio, West Virginia and Kentucky. More aggressive emissions cuts could price power producers in Maryland, where 22% of its production comes from coal, out of the market, said Ben Grumbles, secretary of the Maryland Department of the Environment.

Grumbles was quoted by The Boston Globe last month saying “unacceptable” cuts may drive Maryland out of the agreement. New Jersey Republican Gov. Chris Christie did just that in 2011, saying it was expensive and ineffective.

In an interview last week with S&P Global Market Intelligence, Grumbles called for “a renewed RGGI … that provides a stringent emissions cap without creating unfair competition for Maryland or other RGGI states.”

“Economic competitiveness and the cost of energy to local ratepayers must be considered in our midpoint review of RGGI, in addition to the fundamental objective of reducing greenhouse gases and increasing resiliency,” Grumbles said.

Grumbles was appointed by Republican Gov. Larry Hogan, who angered environmentalists in the mostly Democratic state in May when he vetoed a bill that would have raised Maryland’s renewable portfolio standard to 25% by 2020. The current RPS goal is 20% by 2022.

“It’s not clear exactly what (or who) will drive the state’s position” on RGGI, The Baltimore Sun said in an editorial last week, adding that Hogan’s veto “has already cast doubt about the administration’s commitment to improving air quality and fighting climate change.”

The Sun acknowledged that tougher caps could leave Maryland ratepayers “paying more for cleaner power but still suffering downwind power plant pollution” from its PJM neighbors.

The solution? “Get more states to join RGGI and elect a president who supports the Clean Power Plan,” the Sun said.

Unanimous Vote

The New England Power Pool is in the midst of a stakeholder process intended to further align the region’s wholesale markets with states’ clean energy policy goals. The initiative could result in Tariff changes that ISO-NE would present to FERC. (See Q&A: NEPOOL Chair on Redesigning Market Rules for Low-Carbon Future.)

Changing RGGI’s caps would require a unanimous vote of the nine states, and Maryland and Delaware aren’t the only ones that could balk.

Maine Gov. Paul LePage is a climate change skeptic, and Carlisle McLean, a LePage appointee to the state Public Utilities Commission, told the Globe “the state is looking hard at this continued RGGI commitment.”

Thanks in large part to the falling price of natural gas, RGGI has exceeded its emissions goals, while electric rates have dropped. The allowance sales have raised almost $2.6 billion, which the states have invested in energy efficiency, renewable energy, bill assistance and greenhouse gas abatement.

“RGGI emissions through the first half of 2016 were the lowest they have been in the program’s history, and annual emissions have been below the RGGI cap level in each of the program’s seven years to date,” Acadia Center President Daniel Sosland said. “This shows that emissions are falling quickly and even more cost-effectively than expected and provides the foundation on which RGGI states can feel confident going forward to set more ambitious emission targets.”

Acadia said low trading volume and stable prices could be “an inflection point” as the market awaits the results of the program review now underway.

‘Oversupplied’ Market

“An oversupplied market and low RGGI prices limited the program’s impact in its early years,” said Jordan Stutt, a policy analyst with Acadia. “Failing to strengthen RGGI through the program review could result in similarly low prices, depriving the region of funding for clean energy programs and sending inadequate market signals to clean up the region’s power sector.”

RGGI’s caps aren’t the only driver of its auction prices, which also have been buffeted by speculation over the fate of EPA’s Clean Power Plan.

From the first auction following the release of the draft CPP in June 2014 to Auction 30 in December 2015, RGGI allowance prices increased 49%. In the first auction after the Supreme Court’s stay of the CPP in February, prices dropped 30%.

“These dramatic swings in prices occurred in the absence of material changes in RGGI policy or the region’s fundamental energy market trends,” Acadia noted.

Katie Dykes, deputy commissioner for energy at the Connecticut Department of Energy and Environmental Protection and chair of the RGGI board of directors, declined to discuss specific proposals from her state.

“RGGI’s flexibility and adaptability have enabled the program to be successful across a diverse region. The program review process is based on consensus, and Connecticut is committed to reaching an outcome that works for all nine RGGI states’ unique goals and priorities,” she said in a statement.

Patrick Woodcock, director of LePage’s Energy Office, also emphasized consensus building and said it’s too soon to discuss how the review might influence other states’ participation. “We’re exploring program review changes and doing economic modeling to determine how these will impact the market,” he said.