Isramart : RPT-ANALYSIS-US carbon plan to lean on states after Senate vote

Isramart news:
U.S. regions will lead efforts to contain greenhouse gas emissions over the next few years if Washington can't pass its own legislation, but will have crack down harder if they are to force industry to take meaningful action on fighting global warming.

The election of a Republican in Massachusetts to the U.S. Senate on Tuesday will make it even tougher for the Obama Administration to pass a climate bill containing a "cap and trade" market on emissions --largely because of the already strong opposition to the effort.

That will put the focus back on the states which plan more ambitious regulations to tackle global warming that will proceed with or without Washington's legislative efforts. This involves 10 states in the eastern U.S. that already regulate carbon dioxide in the Regional Greenhouse Gas Initiative, and a western U.S. and Canadian initiative led by California.

RGGI, which started regulating carbon dioxide emissions from the region's power plants in 2009, has so far raised $494 million in quarterly auctions of permits to pollute. Much of the money will go to state programs to increase energy efficiency.

But the weak economy has taken a toll on trading in the market and prices have fallen for three quarterly auctions in a row, to about $2.05 a ton. That compares with prices in the European Union's carbon market that are nine to 10 times higher.

And it is well below the $20 to $50 level that experts say will be needed to push electric utilities and heavy industry to invest in expensive technologies, like capturing carbon and burying it underground, building new nuclear power plants, or new transmission wires for power from solar and wind power farms.

"Two dollar carbon prices aren't going to do much to fight climate change," said Peter Fusaro, a climate markets expert at Global Change Associates, Inc in New York. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a graphic showing U.S. state climate pacts, see: http://graphics.thomsonreuters.com/0110/US_CLIMAT0110.gif ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

INNOVATION AND EXPANSION

RGGI is hoping to expand its programs to tackling economy-wide carbon emissions. It would make those cuts by going beyond regulating pollution from power plants to carbon from transportation, said David Littell, chair of the RGGI board of directors and commissioner of Maine's Department of Environmental Protection.

The 10 states, plus Pennsylvania, are trying to set up a trading system that would reward polluters for using low carbon fuels. They also hope to build regional charging facilities for electric cars that could help development of cars that are more efficient.

In addition, RGGI states mostly agree that they may need to tighten the cap on power plants to raise prices, though may take until 2011 or 2012 to enact.

"You have to constantly reevaluate and readjust to remain vital in climate markets," said Eileen Claussen, the president of the Pew Center on Global Climate Change.

California has a legal mandate to start cap and trade in 2012, and it plans to work with 11 U.S. states and four Canadian provinces in a group called the Western Climate Initiative.

The group plans to start trading in the pollution from power plants and other big emitters in 2012 and expand to cover 90 percent of gases in 2015, when transportation fuels and other sources are included.

That plan could face a one-year delay if moderate Republican Meg Whitman wins the state's race for governor this November. The law allows a one-year moratorium, and Whitman said she would do it in order to study the economic consequences of the 2006 law.

Whitman also has the power to rescind a Schwarzenegger order requiring utilities get a third of their power from clean sources by 2020.

California has already made a number of tough decisions, such as deciding what industries will be affected and outlining the cap and trade program broadly. But plenty of important details have to be nailed down, including how many polluting permits should be auctioned and who gets the money.

The debate in California often boils down to whether the state gains more by fostering clean technology -- it is the leader in venture capital -- or loses more as other states with less regulation steal jobs and businesses, and the weak economy has increased voters' concerns.

RGGI's Littell said if the federal climate plan fails, all of the forward looking states should try to link their cap and trade markets to make them more robust. It could also spur more companies to lobby Congress to shape a national carbon market, which remains the ultimate goal for carbon market backers, he said. (Additional reporting by Ed Stoddard in Dallas; Editing by Marguerita Choy)