First U.S. carbon auction set for Thursday

updated 3:13 p.m. ET Sept. 22, 2008

ALBANY, N.Y. - A coalition of 10 northeastern states this week will take steps to check global warming when it conducts the nation's first carbon auction, taking the same approach that curbed lake-killing acid rain.

Environmental groups, energy producers, and government leaders will be watching closely as the Regional Greenhouse Gas Initiative sells carbon credits Thursday in the first of a series of quarterly online auctions.

The cap-and-trade greenhouse gas reduction program, which aims to hold carbon dioxide emissions steady through 2014 and then gradually reduce them, is widely viewed as a model for future programs around the globe.

"With the leadership vacuum in Washington, it has fallen to the states to take the lead on combating climate change," said Richard Revesz, dean of the New York University School of Law and an expert on environmental law.

In July 2003, then-New York Gov. George Pataki brought together nine other governors to develop a regional strategy to limit carbon dioxide emissions from power plants. The bipartisan action followed President Bush's rejection of greenhouse gas reduction goals set under a 1997 United Nations protocol reached in Kyoto, Japan.

Governors in Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New Hampshire, Rhode Island, and Vermont joined Pataki in the coalition known as RGGI, or "Reggie." Other regional greenhouse gas coalitions, such as the Western Climate Initiative and the Midwestern Greenhouse Gas Accord, are in earlier stages of development.

Backed by McCain, Obama
Both John McCain and Barack Obama support cap-and-trade programs to reduce greenhouse gas emissions, seen as key contributors to global warming.

The approach is patterned after the acid rain-reducing program targeting sulfur dioxide that began with a New York law in 1984 and was expanded nationally with amendments to the Clean Air Act in 1990.

RGGI caps the total amount of carbon that power plants in the 10-state region can pump out of their smokestacks at the current level — 188 million tons. Electric power generators must pay for allowances covering the amount of carbon they emit and RGGI will provide a market-based auction and trading system where the generators can buy, sell and trade the emissions allowances.

The initiative will gradually reduce carbon going into the atmosphere by lowering the cap in several steps, until it is 10 percent below the current level in 2018. During that 10-year span, businesses will have to reduce their emissions. Those that can't, because of cost or technical hurdles, can buy allowances from companies that have achieved cleaner emissions.

Companies have a financial incentive to curb emissions because they won't have to buy as many credits and because they can sell any they don't need. The price of credits is likely to rise as the cap is lowered. That gives companies more incentive to curb emissions sooner rather than later so they can buy and use credits at a lower price and sell them at a profit.

In addition, generators can make up for a small percentage of their emissions by purchasing narrowly defined carbon offsets, such as investing in energy-efficient building technology or planting trees to absorb carbon from the atmosphere.

The overall goal is to give utilities an economic incentive, rather than a regulatory mandate, to burn less coal, fuel oil and natural gas, while at the same time making carbon-free energy alternatives such as wind and solar power more economically attractive.

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