Spanberger’s Backdoor Carbon Tax Blows Past Fiscal Estimates, Could Add $1 Billion to Electricity Costs in First Year

Virginia has been back in the Regional Greenhouse Gas Initiative for less than three months, and the state’s first auction has already generated more than twice what officials projected earlier this year.

The Virginia Department of Planning and Budget estimated in March that participation in RGGI would generate approximately $115.6 million per quarterly auction, or $462.6 million each fiscal year. On September 9, Virginia’s first auction since rejoining generated roughly $259 million from the sale of Virginia carbon allowances.

That difference is driven largely by the rapidly rising price of carbon allowances.

RGGI requires covered power plants to purchase an allowance for each ton of carbon dioxide they emit. When Virginia’s fiscal estimate was prepared, the state cited a recent allowance price of $19.63. The September auction cleared at $37.65 per allowance, nearly 92% higher. Virginia offered 5.74 million regular allowances and another 1.148 million allowances from its Cost Containment Reserve. All of the reserve allowances were sold.

For Virginia taxpayers, those hundreds of millions of dollars do not appear out of nowhere.

Dominion Energy has already asked the State Corporation Commission to reinstate its Rider RGGI charge to recover the costs associated with buying carbon allowances. Dominion calculates a $1.179 billion Virginia revenue requirement reflecting approximately 20 months of RGGI-related costs. Without its proposed mitigation plan, the utility estimates that Rider RGGI would add $13 per month to the bill of a typical residential customer using 1,000 kilowatt-hours. Spreading some of those costs over two years would still result in a $10.36 monthly increase.

Gov. Abigail Spanberger argues that Virginians will be protected from those costs through a new RGGI credit. The state budget directs 45% of RGGI revenue back to certain residential and small-business utility customers, and Spanberger has argued that the credit could more than offset the new monthly charge for those customers.

But a rebate does not make the underlying cost disappear.

Power producers still have to purchase the allowances. Dominion still plans to recover its RGGI compliance costs from customers. And the 45% credit is limited to specified customer classes. Large businesses, industrial customers, and other major electricity users are not included among the residential, small general service, and church customers designated to receive the utility credit.

Those costs can also extend beyond a line item on an electric bill. Dominion’s own filing states that adding the cost of carbon allowances to its Virginia generating units causes those facilities to produce less electricity, with the lost generation replaced through market purchases and out-of-state generation. The utility expects to need approximately 51 million carbon allowances between July 2026 and December 2028.

Virginia did not stumble into this system.

Spanberger made rejoining RGGI a major part of her energy agenda. Delegate Charniele Herring sponsored House Bill 397, while Senators Mamie Locke and Jennifer Carroll Foy sponsored the identical Senate Bill 802. The legislation requires Virginia regulators to maintain a RGGI-consistent carbon trading program. HB 397 passed the House 63-35 and the Senate 21-19 before becoming law earlier this year.

ATR warned in January that returning to RGGI would operate as a backdoor carbon tax on electricity. The first auction provides taxpayers with a clearer picture of the size of that tax. The state projected $115.6 million per auction. Virginia’s first auction produced roughly $259 million.

And the pressure is unlikely to end with one auction. Virginia DEQ is now updating its carbon trading regulations to comply with RGGI’s newest model rule, which lowers future emissions budgets. Fewer available allowances can increase competition for the remaining supply, while the final price will continue to be determined at auction. DEQ itself acknowledges that it does not know what future allowance prices will be.

Spanberger sold Virginia’s return to RGGI as an affordability measure. Virginia’s first auction tells a different story.

The Commonwealth is collecting more than twice the amount projected for each auction, Dominion is seeking to recover more than $1 billion in RGGI-related costs, and taxpayers will ultimately be left navigating a new system of carbon charges and government rebates.

Virginia lawmakers should reverse course and repeal the state’s RGGI mandate. 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.