Abstract for: System Dynamics Analysis on the Rising Prices of RGGI Emissions Allowances in the U.S. Northeast Auctions

The Regional Greenhouse Gas Initiative (RGGI) is a cap-and-trade program for CO₂ emissions from the power sector in the Northeastern United States. It has recently experienced a notable rise in auction clearing prices, historical high US$26.73 per ton in December 2025. This spike represents a 771% surge relative to that of late 2008, and the depletion of key market buffers underscores emerging dynamics in allowance supply, demand, and policy design. This paper employs systems thinking approach to describe the causal relationships and feedback loops governing the RGGI’s price behavior. Key structural elements in the model include emissions cap, auction supply schedules, and the Cost Containment Reserve (CCR) mechanisms designed to moderate price spikes on the RGGI supply side. The model also illustrates, on the demand side, the role of external factors such as compliance cycle, policy credibility, and speculative demand, as well as regional fuel costs and broader decarbonization policies that affect and may be affected by upward price pressures. The findings provide insights into the nonlinear mechanisms that surround allowance price formation and volatility within RGGI’s market architecture. These results offer policy implications for emissions trading systems worldwide, especially in designing adaptive containment tools, calibrating emissions cap, and anticipating dynamic market responses to regulatory shifts. The study contributes to a deeper understanding of carbon market dynamics and offers guidance for improving future carbon pricing designs under conditions of increasing climate ambition.