First US greenhouse cap-and-trade market opens

Ten states in the US Northeast kicked off the country's first cap-and-trade market on greenhouse gas emissions last Thursday, gaining accolades from environmentalists and many businesses but also eliciting concerns about how the states will spend the money the plan raises.

The states from Maryland to Maine formed the Regional Greenhouse Gas Initiative to limit emissions of carbon dioxide from power plants in the absence of guidance from the Bush administration on regulating planet-warming gases.

The group last Thursday conducted its first auction of permits to emit CO2 to utilities and investors who believe that their value will rise. It offered 12.5 million permits in the auction, each representing a ton of carbon dioxide, and will offer up to 188 million permits annually for three years.

By 2012, the region's power companies must either stabilise emissions at current levels or turn in permits they bought in the market. In the second compliance period, RGGI will lower the emissions cap 10 per cent from current levels by 2019.

The states plan to spend money raised from the auctions on improving energy efficiency and alternative energy in hopes of shielding consumers from the program's costs.

But concerns have been raised about how the states will actually spend the money.

"There is a real danger that auction proceeds will be diverted to state budgets rather than used to accelerate the transition to a clean-energy economy," a New York Times editorial said last Thursday.