Carbon goes on the auction block

September 25, 2008 5:55:12 PM PDT
Greenhouse gases went on sale Thursday as 10 Northeastern and mid-Atlantic states held the nation's first auction of pollution credits aimed at curbing global warming. "It is time really to turn the tide on global warming," said New York Gov. David Paterson, who opened the auction by ringing the ceremonial bell at the New York Mercantile Exchange. "And we hope that we've done this today."

The program puts a price on carbon dioxide pollution, giving power plants a financial incentive to cut emissions.

Auction proceeds will go toward energy conservation and renewable energy programs in each of the 10 participating states: New York, Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, Rhode Island and Vermont.

The program aims to hold carbon dioxide emissions steady through 2014 and then gradually reduce them; it is widely viewed as a model for future programs nationally and around the globe.

"It's historic," said Lance Pierce, climate program director of the Union of Concerned Scientists. "The carbon markets have arrived in the United States. And carbon markets, if designed correctly, hold the promise for development of cleaner energy ...

and reductions in global warming pollution that benefit consumers, businesses and the environment as well."

The Northeast regional effort caps the total amount of carbon that power plants in the 10 states 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 Regional Greenhouse Gas Initiative, or RGGI, covers more than 200 fossil fuel power plants, requiring that the owners of those plants pay for the carbon dioxide they emit into the air.

The initiative will gradually reduce carbon emissions by reducing the cap in a series of steps, until it is 10 percent below the current level a decade from now. The companies that don't reduce emissions can buy allowances from companies that have, thereby creating a financial incentive to reduce pollution because the more environmentally friendly plants won't have to buy as many credits and because they can sell any they don't need.

Dale Bryk, senior attorney at the Natural Resources Defense Council, said, "This new energy plan is straightforward, highly cost-effective and creates a clean energy pathway for the rest of the country to follow. It is the shape of things to come."

Carbon dioxide trading already exists in Europe. Some carbon dioxide allowances also are being traded in the United States on a voluntary basis through the Chicago Climate Exchange. But RGGI is the nation's first mandatory capping effort for carbon dioxide.

The initiative took five years to bear fruit. Then-New York Gov.

George Pataki brought together nine other governors five years ago to develop a regional strategy to limit carbon dioxide emissions from power plants.

Other regional greenhouse gas coalitions, such as the Western Climate Initiative and the Midwestern Greenhouse Gas Accord, are in earlier stages of development.

New Jersey Gov. Jon Corzine, who joined Paterson at a news conference at the mercantile exchange, noted that both John McCain and Barack Obama support cap-and-trade programs to reduce greenhouse gas emissions. Corzine said "there is building momentum" to enact federal cap-and-trade legislation.

In response to critics who have argued that the cap is too high, Corzine said, "I think we need to make sure that the mechanics of the auction process and the system work." He said the cap could be lowered at subsequent auctions if the RGGI states determine that it's too high to have the intended effect.

Thursday's auction was run by World Energy, an operator of online green exchanges. Results will be released Monday, pending review by an independent monitor.

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