World and Nation

Many States Aim to Cut Greenhouse Gases by Billing Polluters

Ten states from Maryland to Maine are about to undertake the nation’s most serious effort yet to tackle climate change, putting limits on carbon dioxide emissions from utilities and making them pay for each ton of pollutants.

The program is due to get off the ground in nine days, but already there are worries that it may fail to reduce pollution substantially in the Northeast, undermining a concept that is being watched carefully by the rest of the country, by Congress and by European regulators.

The Regional Greenhouse Gas Initiative, or RGGI, will cap emissions for 233 plants. By putting a price on the carbon dioxide they emit, it gives plants a financial incentive to clean themselves up, with the proceeds channeled to energy-saving and renewable energy programs in each state.

The states will set their own limits, with each issuing tradable permits, or allowances, for carbon pollution. On Sept. 25, utilities will start bidding at auction for allowances, which they can later sell — mimicking the so-called cap-and-trade programs that effectively reduced acid rain in the 1990s.

The concept has been praised by environmentalists and state officials. But the emissions cap was based on overestimates of carbon dioxide output, which has dropped sharply from 2005 to 2006 and is on a lower trajectory than anticipated.

So auction demand may be weak at the start, with millions of allowances the states planned to sell not immediately needed. And with the cap on emissions most likely to be higher, at least initially, than the plants’ actual carbon-dioxide output, it may be many months before utilities have an incentive to cut pollution.

As traders watched the RGGI dynamic evolve, the already low price of carbon futures fell by about 40 percent in the last three months in this country, according to Evolution Markets, a brokerage firm.“The supply of allowances is more than what the market needs,” said Milo Sjardin, head of the North America division of New Carbon Finance, a research and analysis firm. “Prices are not going to be high, not for the foreseeable future.” He also noted that the market was also “not going to produce a lot of emission reductions” as long as the supply of allowances outstrips utilities’ need.

The trading of carbon dioxide allowances exists in Europe, and in a small way in this country; some companies have taken part in trading on the Chicago Climate Exchange, which opened in 2003. But the market has been voluntary and participation largely experimental.

Because it makes participation in a pollution-capping scheme mandatory, the Regional Greenhouse Gas Initiative (known as RGGI and pronounced “reggie”) is already spurring more trading in anticipation. Both the Chicago exchange and the New York Mercantile Exchange have recently made it possible to trade future RGGI allowances.

The trading scheme would hold carbon emissions to 188 million tons annually through 2014, and scale them back by 2.5 percent each year through 2018.