REGULATION:

States working to link regional cap-and-trade programs

States on both coasts of the United States are discussing the possibility of merging two regional climate initiatives to create a sprawling program restricting greenhouse gas emissions that will affect several economic sectors, one-third of the country and most of Canada.

The move could impose emission limits on sources like cars, businesses and residential heating fuel in 17 states, including along vast stretches of both heavily populated coastlines, and in four of Canada's seven provinces.

Such a merger would widely expand the scope of the nation's only cap-and-trade program, launched this month in 10 Eastern states, limiting carbon dioxide emissions from 233 power plants. It also underscores the urgency with which some states are acting to address climate change, even as President Barack Obama settles into the White House after promising to impose federal carbon restrictions.

Professional staff members from states participating in the Regional Greenhouse Gas Initiative (RGGI), the East Coast program stretching from Maine to Maryland, are meeting with their counterparts at the more aggressive Western Climate Initiative to lay the groundwork for blending the two programs, according to participants.

The plans are in the preliminary stages, though participants believe the programs could coalesce by 2012, when the Western initiative is scheduled to launch. That would mean the Eastern program, whose acronym is commonly pronounced "Reggie," would likely finish its first phase of auctioning pollution permits over three years before vastly expanding its scope beyond power plants.

"Most states are very supportive of taking the next step," said Peter Iwanowicz, director of the Climate Change Office in New York state, which has taken a lead role in the effort to combine the two programs. "All the agency heads have always had that in mind."

Ian Bowles, secretary of energy and environmental affairs in Massachusetts, said in an interview: "We would like to develop a clear partnership with the Western Climate Initiative, as well as the Midwestern initiative," a proposal to cap emissions in six central states and the Canadian province of Manitoba.

Tempering Western ambitions with Eastern experience

In preparation for a merger, the Eastern initiative is ramping up its reach to match the aggressive policies outlined in the Western and Midwestern programs, both of which propose economywide limits on carbon output. The program is developing a low-carbon fuel standard, helping it mesh with a key element of the Western initiative that limits emissions from cars, trucks, heating fuel and chemical processes.

And Western officials, meanwhile, are learning the mechanics of auctioning allowances, or pollution permits, from East Coast specialists in sessions informally named "RGGI schools." The program is the first cap-and-trade initiative in the world with a policy of auctioning off nearly all of its permits, rather than giving some away.

During its first auctions in September and December, the program sold nearly 50 million allowances. Each permit allows polluters to emit 1 ton of carbon dioxide, while the revenue is used for energy efficiency initiatives.

But the discussions of a merger are occurring as environmentalists celebrate a transformation in the White House -- and the promise of a national cap-and-trade system. Some see the state activity as a creative way for the states to develop their regulatory programs. Others argue that the state activity is an effective tool for some environmental groups to prod more national corporations -- which don't want to see differing market rules -- to support a unified federal system that pre-empts the states.

"With the very real hope that there will be a federal system, are the states going to put a bunch of work into that [merger] when a better thing would be a federal system?" asked Ned Raynolds, the Northeast climate policy coordinator for the Union of Concerned Scientists.

He noted that a coast-to-coast program mandated by Congress could be in place by the time the merger occurs.

There are other challenges, too. In the East, there's a functioning futures market that could be disturbed by the expansion, which some believe could lower the price of carbon allowances. The connection could also be made more difficult by the different starting point and scope of each program, critics and supporters say.

A move that can be taken without Obama

The idea of marrying the two programs seems to soothe those currently in the bull's-eye of the Regional Greenhouse Gas Initiative. New England power plants would no longer singly shoulder the burden of paying for every ton of emitted carbon dioxide.

"Conceptually, I think I like it," said Christopher Sherman, general counsel for the New England Power Generators Association.

Despite Obama's rise in Washington, some states appear dedicated to remaining on the trajectory that has so far set the tone in the United States for action on climate change.

"Not knowing where they're going to go, or how fast either Congress or the Obama administration will move on a cap-and-trade program, the states will continue to be the incubator of these type of programs," said Iwanowicz of New York.

So the states may be pursuing the partnership between the two programs as an insurance policy against federal failure. But there's still strong hope that Washington will move fast under Obama's banner.

Bowles, of Massachusetts, acknowledged that it is "less important" now than it was before Obama's election to converge the two programs.

"We all believe that a strong federal policy is the fundamental goal of what we're doing," he said. "Because we don't believe that even half of the states can solve the greenhouse gas problem without the entire country."

If federal aspirations fall victim to a suffering economy or Senate filibusters, however, the convergence of the regional programs would draw a remarkable new map.

In the East, every coastal state north of Virginia would link with vast stretches of Canada, reaching as far west as North Dakota through the provinces of Quebec, Ontario and Manitoba.

In the West, an arc of regulated states would sweep north from Arizona and New Mexico through California, Utah, Oregon, Washington and Montana. It would continue to the southern border of Alaska through the province of British Columbia.

"Without a doubt, I think an ideal scenario would be that they all eventually merge," said Jim Whitestone, a director at the Ontario Ministry of the Environment.