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Seven States Agree on a Regional Program to Reduce Emissions From Power Plants

by: ANTHONY DePALMA    21 December 2006

New York, New Jersey and five other Northeastern states have formally agreed to join in the first mandatory regional program in United States history to cut greenhouse gas emissions from power plants.

After more than two and a half years of intense negotiations that nearly collapsed last week after the withdrawal of two states, the governors of the remaining seven states signed an agreement yesterday to jointly reduce carbon dioxide emissions 10 percent by 2019.

"We will use a market-based system to curtail harmful CO2 emissions and spur the development of innovative technologies that will reduce our dependence on foreign energy, strengthen our economy and take meaningful steps in the fight against climate change," Gov. George E. Pataki, who initiated the multistate effort in 2003, said in a statement.

Environmentalists praised the regional agreement as a turning point in American efforts to reduce heat-trapping gases that have been linked to global climate change. The seven governors hope that other states will follow their example, leading eventually to the adoption of a national program.

"In the absence of federal leadership, these states have taken real steps to cut carbon dioxide emissions," Acting Gov. Richard J. Codey of New Jersey said in a statement.

The states' efforts to create a national model were slowed by the loss of Massachusetts and Rhode Island, which dropped out over concerns that controls would push up energy prices. Environmentalists also suggested that Gov. Mitt Romney of Massachusetts, who is expected to run for the Republican nomination for president in 2008, withdrew to distance himself from potential rivals, including Mr. Pataki.

Mr. Romney denied that politics played a part in his decision.

Representatives of the electric power industry who oppose mandatory controls said that establishing a national program would be impossible because of the conflicting needs of different states.

"It's much easier to sign an agreement than to make it work, even in regions with similar interests," said Frank Maisano, a spokesman for the electricity generating industry. Plant operators are switching to clean energy as fast as they can, he said, but imposing caps will only "affect those who can least afford it."

The other states in the pact are Connecticut, Delaware, Maine, New Hampshire and Vermont. Maryland, Pennsylvania and five Canadian provinces have participated in discussions but are not yet ready to join the program. And several Western states, including California, are working on similar proposals.

Under the Regional Greenhouse Gas Initiative, as the Northeast plan is known, the seven states will create a flexible system of pollution permits, called allowances. Each state will issue one allowance for every one of the 121 million tons of carbon dioxide that power plants in the region now produce.

At least 25 percent of those allowances will be auctioned off, with the proceeds going to consumer subsidies or conservation projects. The rest will be given to power plant operators free of charge.

Each power plant will need enough allowances to cover all its emissions. Plants that run on cleaner fuels like natural gas may not use all theirs and can sell surplus ones to generators that need them.

Plants that burn coal, which emits far more carbon dioxide, may have to buy additional allowances.

Operators also have the option of covering some emissions by financing "offsets," environmentally sound projects that reduce carbon dioxide from sources other than power plants. For example, they can pay to plant trees or finance projects to recover methane gas from landfills.

This system of allowances and offsets is intended to encourage technological innovation. A similar program was established in the early 1990's to handle the problem of acid rain.

In an attempt to keep Massachusetts in the agreement, the other states amended their original proposal last week. If allowances exceeded $7 a ton, the amount of pollution offsets available would increase. If allowances exceeded $10 a ton, offsets would increase even more, and would be allowed to be financed anywhere in the world.

But Mr. Romney did not accept the compromise, and Massachusetts will enact its own program next year. The changes, however, have remained in the plan.

Based on cost estimates done by the states, average household bills could go up by about $20 a year, although some plant operators claim the increases will be much higher.

Andrew O. Ertel, president of Evolution Markets, a brokerage firm in White Plains that handles emissions allowance trading around the world, said the last-minute changes would help create a workable market.

"They add a layer of complexity," Mr. Ertel said, "but in the end they are going to lead to low-cost reductions in CO2 and true environmental benefits."

Each of the seven states will issue draft regulations for public review early next year. States must then either submit them for legislative or regulatory approval.