(BN) Cap-and-Trade Market Spanning North America Weighed by States


Cap-and-Trade Market Spanning North America Weighed by States
2010-11-30 05:00:02.1 GMT

By Simon Lomax
Nov. 30 (Bloomberg) -- California, New Mexico and 10 U.S.
Northeastern states may try to create a North American carbon
market on their own now that President Barack Obama has given up
on cap-and-trade legislation that stalled in Congress.
The emissions-trading system would be based on a planned
carbon market in California, the most populous state, and an
existing regional cap-and-trade program for power plants in the
Northeast, according to state environmental officials. Three
Canadian provinces have also shown interest in a cross-border
carbon-trading system, the officials said.
"The key is to have as large and as liquid a market as
possible," John Yap, British Columbia's climate-change
minister, said in a telephone interview. Under cap-and-trade,
the government creates a market for pollution rights by issuing
a limited number of carbon-dioxide permits, which companies can
buy and sell.
The prospects for a North American market got a boost Nov.
2 when voters in California rejected a ballot measure that would
have delayed that state's global-warming laws. Talks that began
last year, as cap-and-trade legislation backed by Obama faltered
in the U.S. Congress, will resume when state environmental
officials meet in Washington this week.
The states and provinces weighing a unified carbon market
represent about one-third of the combined $15.5 trillion U.S.
and Canadian economy, according to government statistics and the
International Monetary Fund.
After Republicans won control of the House and narrowed the
Democrats' Senate majority in the Nov. 2 midterm elections,
Obama said cap-and-trade "was just one way of skinning the
cat" and that he doubts it could pass Congress until 2013 at
the earliest. In Canada, the national government has said it
won't set up its own cap-and-trade program unless the U.S. does.

Close to the Coasts

A carbon market established without the support of the U.S.
and Canadian governments would probably "stick pretty close to
the Atlantic and Pacific coasts and not venture too far
inland," Ethan Zindler, a Washington-based analyst with
Bloomberg New Energy Finance, said in an interview.
Such a cap-and-trade system may cover more than 800 million
metric tons of carbon dioxide a year, making it about one-third
the size of Europe's cap-and-trade program, according to New
Energy Finance estimates.
California plans to start a cap-and-trade program in 2012.
It may be joined by New Mexico and the Canadian provinces of
British Columbia, Ontario and Quebec, which also have cap-and-
trade laws, according to California officials. Links to the
Regional Greenhouse Gas Initiative, a trading program covering
10 states in the Northeast, are also being explored, according
to Mary Nichols, chairman of California's Air Resources Board.

Not Being Alone

"Nobody, including us, wants to be alone in implementing a
cap-and-trade program," Nichols said on a conference call after
the defeat of the ballot measure.
The 10 states in the Northeast have been auctioning carbon-
dioxide permits, or allowances, since 2008. The Regional
Greenhouse Gas Initiative's quarterly auctions have raised $729
million so far. The next auction is scheduled for tomorrow, with
results to be released Dec. 3.
Revenue from the auctions is falling because power plants
are producing less electricity in the weak economy and need
fewer carbon allowances. Auction revenue from the first three
quarters of this year fell 18 percent and some allowances have
gone unsold, according to data from the regional cap-and-trade

Budget Shortfalls

While most of the money from the Northeast auctions is set
aside for renewable-electricity generation and energy-saving
projects, New York, New Jersey and New Hampshire have used some
of it to help close budget shortfalls.
The rules of the Northeast's cap-and-trade market are
scheduled for review in 2012 and "some discussions" have been
held about aligning the program with the California-led system,
James Brooks, air-quality director of the Maine Department of
the Environment, said in a telephone interview.
Linking the regional cap-and-trade programs to function as
a single carbon market would require complex negotiations on "a
whole litany of issues," Brooks said. The minimum bid for an
allowance in the Northeast's cap-and-trade program is $1.86,
while California wants to set the price floor for carbon permits
at $10, he said.
State officials must also weigh the support such a North
American carbon market would get from newly elected governors,
he said.
"Many of us will have to go back and check in with the new
administrations," Brooks said.

Republican Governors

In the U.S. Midwest, where six states have been debating
whether to create their own carbon market, this month's election
will probably prevent the region from joining cap-and-trade
systems on the coasts, Mike Robertson, an environmental-policy
consultant with the Minnesota Chamber of Commerce, said in a
telephone interview.
Of the six states in the Midwestern Greenhouse Gas
Reduction Accord -- Iowa, Illinois, Kansas, Michigan, Minnesota
and Wisconsin -- Democrats lost the governor's race or control
of the legislature to Republicans in five, according to data
from the National Conference of State Legislatures. Many
Republicans in national and state politics have opposed cap-and-
trade, which they say is an energy tax in disguise.
"I don't think the new leaders in the legislatures or in
the governors' offices will be interested in pursuing a regional
cap-and-trade program," said Robertson, who served on an
advisory panel for the proposed Midwest system.
While debating the technical aspects of a North American
carbon market, the state officials meeting this week are also
likely to review the election results and "what they think that
means within their individual states," Doug Scott, director of
the Illinois Environmental Protection Agency, said in a
telephone interview.

For Related News and Information:
Top environment stories: GREEN <GO>
Stories about U.S. and climate: TNI US CLIMATE <GO>
Global emissions data: EMIS <GO>

--Editors: Larry Liebert, Steve Geimann

To contact the reporter on this story:
Simon Lomax in Washington at +1-202-654-4305 or

To contact the editor responsible for this story:
Larry Liebert at +1-202-624-1936 or LLiebert@bloomberg.net.