Regional Global Warming Caps Involving 17 States Move Forward This Week

Two regional efforts to reduce the heat-trapping emissions that
cause global warming will move forward this week. The two partnerships
- one in the West and the other in the Northeast - are in the process
of establishing regional cap-and-trade systems, market-based systems
that place a limit on global warming pollution that is tightened over
time.

On Tuesday, September 23, The Western Climate Initiative (WCI), a
partnership among seven states and four Canadian provinces, will issue
recommendations for a regional, economy-wide cap-and-trade program. The
states and provinces include Arizona, California, Montana, New Mexico,
Oregon, Utah, Washington, British Columbia, Manitoba, Ontario and
Quebec. The Midwestern Governor's Association also is working on a
similar system for nine states and the Canadian province of Manitoba.

On Thursday, September 25, the Regional Greenhouse Gas Initiative
(RGGI), a partnership among 10 Northeastern states, will conduct the
first U.S. auction of carbon dioxide emission permits under a mandatory
cap-and-trade system. RGGI covers electric power plants located in all
six New England states, New York, New Jersey, Delaware and Maryland.

"These 17 states recognize that we need to reduce global warming
pollution as quickly as possible. Their senators and representatives in
Congress should take a good look at these two efforts and take
appropriate action at the federal level," said Lance Pierce, Climate
Program director at the Union of Concerned Scientists (UCS). "Building
a truly national clean energy economy will create jobs, help end our
addiction to fossil fuels, and prevent the worst consequences of global
warming."

(For UCS-led reports on the consequences of global warming in the Northeast and California, go to: www.climatechoices.org/.)

THE RGGI PROGRAM Under the RGGI permit program, which goes into
effect on January 1, the total emissions allowed from the 10 states'
electricity plants will be capped at the same level through 2014 and
then reduced by 10 percent by 2019. Each plant will have to obtain a
permit -- also called an "allowance" -- for each ton of carbon dioxide
it emits.

RGGI states plan to auction nearly all of the permits rather than
give them to plants for free. The states also will spend auction
revenue on programs that help homeowners, businesses and industries
make their buildings and equipment more energy efficient and on
initiatives that support renewable energy development.

"By investing auction revenue in energy efficiency and clean
energy, Northeastern states will cut their electricity consumption and
the energy we use will be cleaner," said Pierce. "Those investments
also will help our regional economy by creating local jobs, keeping
energy costs affordable, and shielding ratepayers from energy market
volatility. After all, when you use solar panels and wind turbines,
you're using free, domestic fuel that never runs out. "

UCS, which generally supports cap-and-trade systems, believes that
the RGGI cap may be too high. The cap was set in 2005 and allowed for
what officials assumed would be modest growth in emissions. New data,
however, indicate that emissions have decreased significantly since
then. State officials attribute the drop to milder weather, a slowing
economy, and electricity generators switching to cleaner fuel.

"It's good that emissions have dropped, but that means the
pollution cap likely will be higher than the level power plants will be
emitting when the program goes into effect," said Pierce. "The lesson
is that up-to-date, accurate emissions data are crucial, and that
cap-and-trade systems should include a provision for updating the cap
within a reasonable time before it actually takes effect. State
regulators must be able to quickly assess how much global warming
pollution the plants are actually emitting and, if necessary, lower the
cap."

THE WCI PROGRAM WCI is expected to issue a general outline of
its regional cap-and-trade program, which aims to reduce heat-trapping
emissions 15 percent below 2005 levels by 2020. Each state or province
will have the ability to establish a more specific role for itself in
the program through legislation or administrative action over the next
few years. There are two areas where states and provinces may be able
to significantly strengthen the program beyond WCI's minimum
recommended standards:

First, states and provinces may be allowed to choose how many
emission permits are distributed through auctions and how many are
given away for free. WCI is expected to set a minimum requirement for
the amount of allowances that are auctioned. When RGGI states were
faced with a similar decision about auctioning, all of the
participating states chose to auction nearly or fully 100 percent of
the allowances. Economists and policymakers widely recognize that
giving away allowances results in windfall profits for polluters and
makes it more difficult for states to achieve their pollution reduction
goals. UCS experts will urge participating states and provinces to
auction 100 percent of their allowances.

Second, states and provinces may be able to determine the level of
offsets that are used to meet pollution reduction targets. Offsets
allow a polluter to earn credit for reducing emissions by paying others
to reduce emissions. UCS experts will urge WCI states to limit the role
of offsets to a small fraction of the emission reductions expected from
the cap-and-trade program to ensure that the vast majority of the
global warming pollution reductions occur in the region's high-emitting
transportation, electricity and industrial sectors. Limiting offsets
would result in more direct global warming pollution reductions in the
region, which in turn would spur more clean technology development and
improve public health by simultaneously reducing conventional
smog-forming and toxic air pollutants.

WCI also could set its cap too high and allow too many allowances to enter the market.

BACKGROUND ON CAP-AND-TRADE SYSTEMS
Under cap-and-trade
programs, governments establish a cap on global warming emissions and
tighten it over time. Governments then distribute emissions permits,
often referred to as allowances, that correspond to a specific number
of metric tons of global warming pollution. The total number of
allowances would match the cap and be reduced over time.

The program would require polluters to have a permit for each ton
of emissions. Polluters would acquire permits during government
distribution through auctions or giveaways. Then, polluters can trade
for permits in a carbon market.

Such a market would enable polluters that are able to reduce their
emissions relatively cheaply to sell allowances to those that are
unable to do so, thereby establishing a market price for carbon. The
program would create an incentive for polluting facilities to implement
the most cost-effective emissions reduction options and, by putting a
price on global warming pollution, encourage investments in new
low-carbon technologies.