Landmark U.S. Global Warming Plan for Power Plants Launches

In a landmark move to build a clean energy economy and cut global warming pollution, Northeastern states today kicked off the world's first emissions trading market that will promote efficiency and cut pollution from power plants. The new approach will reduce carbon dioxide pollution to a level 10 percent below current emissions by 2019, while rewarding smart companies that outperform new pollution limits and lowering energy costs for consumers.

"Today is a bold step forward for our clean energy future and the fight against global warming. The new system is good for consumers, good for the economy and good for our climate," said Dale Bryk, senior attorney at the Natural Resources Defense Council (NRDC). "This new energy plan is straight-forward, 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."

Known as the Regional Greenhouse Gas Initiative (RGGI), this system creates a pollution trading market that sets new limits on the amount of global warming pollution power plants can emit. Plants will need to hold permits for every ton of pollution; those that find low cost ways to reduce emissions will need to purchase fewer permits, or allowances, and can sell any unused allowances to less-efficient plants that need them.

This is the first mandatory cap and trade energy system for global warming pollution ever implemented in the U.S., and the first time in the world this kind of system has put allowances up for sale, rather than distributing them for free. The structure gives power plant owners a financial incentive to reduce pollution and will encourage the development of cleaner sources of energy. Almost all of the revenue generated by the auction of allowances will be directed to state energy efficiency programs, thereby further developing a cleaner power sector and lowering energy bills for residential, commercial and industrial energy consumers.

The first quarterly auction of pollution allowances takes place today, and power plants in all participating states will be fully operating under the new system by 2009. Participation in RGGI offers companies in the Northeast a competitive edge as the federal government pollution limits take shape. Although the Bush administration has steadfastly rejected concrete cuts in emissions, there is pressure in both parties to adopt national legislation to curb global warming pollution.

"RGGI provides a competitive advantage to Northeastern companies," said Luis Martinez, attorney with NRDC's energy program. "These companies are leapfrogging competition both at home and abroad by getting more productivity out of less energy. It's smart business, and they will reap the rewards as will consumers in the region."

RGGI is expected to lower utility bills by helping consumers and businesses use energy more efficiently. In fact, an analysis commissioned by the RGGI states concluded that the state climate accord would save typical residential customers over $100 per year on their energy bills.

"Consumers will not have to make a choice between environmental preservation and their pocketbooks," said Dale Bryk. "This system is designed to protect both."

RGGI sets an example for the federal government to establish an energy efficiency plan for the entire country, and similar multi-state climate pacts are in development among western states and Midwestern states. California is on the cusp of creating an economy-wide pollution reduction plan.

Six of the 10 states participating in the new system held their first allowances auction today - Connecticut, Maine, Maryland, Massachusetts, Rhode Island and Vermont. The remaining participating states will hold their first auction in December - Delaware New Hampshire, New Jersey, New York. Today's auction will be the first of 14 auctions that will take place before the end of the first three-year compliance period. Auctions will continue on a quarterly basis thereafter.

Leading companies operating in the region that have backed the new system include Bank of America, Staples, National Grid, Pfizer, PSEG and the association of large energy users called The Energy Consortium.

The new approach is similar to the highly successful program introduced by President George H.W. Bush in the early 1990s to address the acid rain problem. That program has achieved better results at a much lower cost than even optimists estimated at the time of its launch.

The Northeast program would also allow states outside of the region to participate, and might eventually be extended to cover not just power plants but all stationary global warming pollution sources, as well as additional global warming pollution, such as methane and sulfur dioxide.