On September 8, 2026, the New Jersey Department of Environmental Protection (NJDEP) published a proposal in the New Jersey Register to overhaul the state’s Carbon Dioxide (CO2) Budget Trading Program at N.J.A.C. 7:27C, along with related changes to the operating permit rules at N.J.A.C. 7:27-22 and the civil administrative penalty provisions at N.J.A.C. 7:27A. The package (DEP Docket No. 03-26-08) aligns New Jersey’s regulations with the updated Regional Greenhouse Gas Initiative (RGGI) Model Rule and would reduce New Jersey’s annual allowance budget from approximately 13.1 million allowances in 2027 to about 1.4 million allowances in 2037, an overall reduction of roughly 89 percent.
For owners and operators of fossil fuel-fired power plants and cogeneration units, the proposal changes how allowances are priced, released, and used for compliance. A public hearing is set for October 15, 2026 and comments are due by November 7, 2026.
Why New Jersey Is Updating Its Rules
Each RGGI state implements the regional program through its own regulation built on a shared model rule, which the states periodically reevaluate. The most recent Third Program Review began in 2021 and wrapped up in July 2025 with the release of a revised model rule. That model rule takes effect January 1, 2027, and participating states generally update their regulations to maintain consistency with the RGGI Model Rule and preserve the regional allowance trading program. . New Jersey law (N.J.S.A. 26:2C-47) separately requires the state program to stay consistent with the RGGI model. Background on the regional process is available on RGGI’s Third Program Review webpage.
A Steeper Budget for Emissions
Under the current rule, New Jersey’s budget steps down to 12.6 million tons in 2030 and then levels off. The proposal replaces that plateau with a continuous decline. The 2027 budget would start at 13.12 million tons (versus 14.22 million tons under the existing rule) and drop by about 1.64 million tons per year until it reaches 3.28 million tons in 2033. The decline then slows, ending at roughly 1.41 million tons in 2037. Regionally the 2027 cap falls from approximately 75.7 million tons to 69.8 million tons.
Because each allowance authorizes one short ton of CO2, facilities that expect to keep fossil units running at current levels should plan on competing for a shrinking supply at quarterly auctions and on the secondary market.
How NJDEP Would Reshape the Allowance Market
A Higher Minimum Auction Price
The Emissions Containment Reserve (ECR), which held back a set number of allowances from auction when prices dipped below a trigger, would end in 2027. NJDEP proposes a minimum reserve price of $9.00 per allowance in 2027 that increases about 7 percent each year to $17.70 in 2037. If bids fall short of the floor, allowances simply go unsold rather than clearing at a lower price.
A New Two-Tier Cost Containment Reserve
At the upper end of the market, the single cost containment reserve (CCR) containing the number of allowances held in reserve each year above the regional CO2 budget allowance cap would be replaced with two tiers, and New Jersey would allocate 2,207,693 allowances to each tier every year. Tier 1 allowances become available when auction prices exceed a trigger of $19.50 in 2027, rising to $38.36 by 2037. Tier 2 allowances are released only if demand remains unmet after the initial offering and all available Tier 1 allowances, and they carry a higher trigger of $29.25 in 2027, rising to $57.53 by 2037.
NJDEP notes that this reserve is a buffer, not a hard price ceiling. The single-tier reserve was fully drawn down in 2025 while prices stayed above the trigger, and a larger two-tier reserve can still run out.
Offset Phase-Outs
No new CO2 offset allowances will be awarded for projects that reduce or avoid emissions outside the power sector, and NJDEP proposes to repeal its offset subchapter (N.J.A.C. 7:27C-10) entirely. The direct effect in New Jersey is limited because the state has never awarded an offset allowance. Offset allowances issued by any participating state before January 1, 2027, will remain usable for compliance, subject to existing limits.
Additional Program Changes
The proposal also includes several administrative and programmatic revisions, including streamlining monitoring and reporting requirements by incorporating federal Part 75 requirements by reference, clarifying interim control period compliance obligations, updating treatment of cogeneration set-aside allowances, removing obsolete provisions, and making conforming changes to penalty provisions.
Affected Facilities
The program applies to CO2 budget units, which are generally fossil fuel-fired units that serve an electricity generator with a nameplate capacity of 25 megawatts or more. Facilities likely to be affected include:
- Utility-scale and merchant natural gas and oil-fired generating stations;
- Certain Combined heat and power (CHP), applicability depends on whether the unit qualifies as CO2 budget unit under the rule.
- Cogeneration units at manufacturing, institutional, and industrial sites;
- Any CO2 budget source whose operating permit will need to reflect the updated program requirements.
NJDEP proposes that CO2 budget sources already holding an operating permit apply to incorporate the amended requirements within six months of the rule’s effective date, either through a renewal or through a modification, including a minor modification. The amendments themselves would become operative 60 days after adoption.
Program Costs
NJDEP relies on regional modeling prepared during the Third Program Review. Under the new program design, projected allowance prices (in 2022 dollars) range from about $8.55 to $19.40 per ton in 2028 and about $13 to $28 per ton by 2037, depending largely on how quickly renewable resources come online. A scenario with no cap changes, by comparison, projected prices near $2.50. The related customer bill analysis estimated impacts ranging from an increase of less than 1 percent to modest decreases, driven mainly by how states reinvest auction proceeds.
NJDEP acknowledges that conditions have since shifted. Recent auctions have cleared well above the early-year prices assumed, federal clean energy tax credits are winding down, and regional electricity demand is growing. The Department plans to refresh its bill analysis with current auction data and to revisit the cap trajectory and cost-containment design during the Fourth Program Review, which is set to begin no later than 2028. In short, actual allowance prices could differ materially from modeled projections due to changing market conditions, electricity demand growth, and evolving energy policy .
Planning Compliance Strategy
With less supply and a rising floor, allowance costs are likely to become a larger, less predictable budget item, depending on auction results, electricity demand growth, fuel markets, and future RGGI program reviews. Facilities should consider:
- Updating allowance cost forecasts using the new floor and reserve triggers rather than historical auction results;
- Reviewing banked allowance positions and procurement timing ahead of 2027;
- Evaluating efficiency upgrades, fuel changes, or dispatch strategies that lower emissions intensity;
- Scheduling operating permit applications to meet the proposed six-month incorporation window;
- Confirming that monitoring plans align with the streamlined Part 75 references.
Hearing and Comment Deadlines
NJDEP will hold a virtual public hearing on Thursday, October 15, 2026, at 8:30 a.m. through Microsoft Teams, with a call-in option available. Access details will be posted on NJDEP’s rule proposals and public notices page. Anyone planning to testify must email [email protected] their name, organization, phone number, and email address by 5:00 p.m. on October 13, 2026.
Written comments are due by close of business on November 7, 2026, and can be submitted through NJDEP’s online comment portal or by mail to the Department’s Office of Legal Affairs. Each comment should reference Docket No. 03-26-08 and the specific N.J.A.C. citation it addresses. Affected facilities may want to weigh in on cost containment, price volatility, and implementation timing.
Partner with Trinity’s New Jersey Team
Trinity’s New Jersey professionals have supported facilities across the state with air permitting, emissions monitoring, and greenhouse gas compliance for more than 25 years. We can help evaluate applicability, forecast compliance costs, assess allowance procurement strategies prepare operating permit modifications, review monitoring plans, and develop technically supported comments for submission to NJDEP.
For assistance, contact Trinity’s Princeton office at 609.318.5500.
