Cap and trade arrives in the Northeast: First carbon auction set for Thursday

Sep 22, 2008 - sciam.com

Image by Matthew D. Wilson/LtPowers

Why bid on a Picasso when you could buy a carbon credit instead?

A coalition of 10 Northeastern states will hold a carbon auction Thursday, the country's first in a mandatory cap-and-trade program designed to reduce greenhouse-gas emissions. Power generators have been ordered by the 10 states who agreed to the regional program to limit their collective carbon dioxide emissions to the current level of 188 million tons (171 million metric tons) beginning next year, then reduce them by another 10 percent by 2018 in an attempt to reduce climate-change causing emissions.

Under the cap-and-trade program, the participating states will hold a quarterly auction, during which power companies buy, sell and trade their emissions allowances. Both presidential candidates back cap and trade, which has been in effect in the European Union since 2005 and is modeled after a similar emissions trading scheme for the pollutants behind smog and acid rain.

Businesses that can't reduce their emissions in the 10-year period can buy allowances from companies that are producing cleaner energy. The financial incentive for companies comes from not having to buy as many credits, and being able to sell ones they don't need, the Associated Press notes. As the cap is lowered, the price of credits will rise, giving them the opportunity to sell them at a profit — another reason to cut down on emissions sooner.

The states participating in the Regional Greenhouse Gas Initiative (RGGI) are New York, Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New Hampshire, Rhode Island, and Vermont. Two similar programs — the Western Climate Initiative and the Midwestern Greenhouse Gas Accord — are still in development.