Emission Rights for Sale in Auction

By David A. Fahrenthold and Steven Mufson
Washington Post Staff Writers
Thursday, September 25, 2008

Maryland and five other Eastern states will conduct the first U.S. auction today to sell power plants the right to emit greenhouse gases -- putting a price tag on pollution that has become a national worry but that has remained essentially free.

The auction is the latest step in a regional end-run around the federal government's refusal to cap emissions. The states in the Regional Greenhouse Gas Initiative have set their limits, and they want local power plants to pay for their share.

Today's auction is expected to have a minimal impact on U.S. emissions. The number of "allowances" for sale will cover a fraction of the national total, and experts say prices will probably be so low that utilities can pay a little and continue polluting.

But the programs' backers say the auction will be historic, demonstrating a new way to handle an environmental problem that has often seemed too big to grasp.

"This will be the first time that a price will be put on emitting greenhouse gases," said David Littell, commissioner of the Department of Environmental Protection in Maine, one of the member states. "It's clear that some type of system like this will be adopted eventually" on a national scale, he said.

Greenhouse gases, which scientists say accumulate in the Earth's atmosphere and trap the sun's heat, are emitted by cars, factories, power plants and other things. Environmentalists have pushed the federal government to adopt a national "cap-and-trade" system, requiring polluters to reduce their emissions or pay for them.

But the most recent bid to impose national controls on greenhouse gases, proposed by Sens. John R. Warner (R-Va.) and Joseph I. Lieberman (I-Conn.), fizzled on Capitol Hill this year.

Now the Regional Greenhouse Gas Initiative, composed of Maine, New Hampshire, Vermont, Connecticut, New York, New Jersey, Delaware, Massachusetts, Rhode Island and Maryland, will test one of the idea's central premises: that government can make pollution a commodity, without creating oversupplies that render the allowances worthless or scarcities that would make the costs crushing for utilities.

Companies have been largely supportive, although some have expressed concern that businesses might consider moving, once utilities pass along the costs of buying emission permits.

"We're going to be doing exactly what [the Regional Greenhouse Gas Initiative] was intended to do: Lead the nation and show that an auction can be executed in a successful way," said Ralph Izzo, chief executive of PSEG, a New Jersey-based electric utility. "This should give Congress the confidence to say 'Hey, this can work.' "

Despite its expected import, the auction will have less visible drama than a cattle sale at a county fair: It will be conducted online. Six of the 10 states will offer allowances worth about 12.5 million tons of carbon dioxide pollution. The largest share, about 5.3 million tons, will be sold by Maryland, which is the largest source of emissions among the six. States not participating today are New York, New Jersey, Delaware and New Hampshire.

The buyers will probably include power plants -- the cap applies only to larger plants in the 10 states, about 233 in total. But, organizers said, some allowances could also be bought by brokers, who plan to re-sell them later.

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