MELISSA BLOCK, host:

From NPR News, this is All Things Considered. I'm Melissa Block.

MICHELE NORRIS, host:

And I'm Michele Norris. On September 25, several eastern states will make history by holding an auction. They're selling allowances to emit greenhouse gases. If you're a big power company in those states, you'll have to buy an allowance for every ton of gas that goes up your smokestack. There are similar moves afoot in western states, and we'll hear about those in a moment. First, as NPR's Christopher Joyce reports, the eastern auction is a big step toward a carbon economy.

CHRISTOPHER JOYCE: Carbon dioxide is the main greenhouse gas warming the Earth, and one way to get rid of it is to slap a price on it. For example, if you put it up in the atmosphere, you've got to pay. And if you get rid of it, you can make money. Economists call it the market-based way to make people do things they don't necessarily want to do. Ten states in the east have joined together to start the process. Jonathan Schrag is in charge of this group.

Mr. JONATHAN SCHRAG (Executive Director, Regional Greenhouse Gas Initiative): The Regional Greenhouse Gas Initiative, RGGI, is the first in the nation, market-based, mandatory program to control greenhouse gases.

JOYCE: They're starting with companies that make electricity.

Mr. SCHRAG: Every ton that they emit beginning January 1, 2009, they need to have an allowance to show for that.

JOYCE: Companies must buy the allowances at the auction, enough to cover the amount of CO2 they think they'll emit, and the states get to keep the auction money. Shari Wilson runs the Department of the Environment in Maryland.

Ms. SHARI WILSON (Secretary, Department of the Environment, Maryland): Our best estimates are that the price of an allowance will be somewhere between $2 and $3, which in Maryland in this first auction, for example, would raise about $15 million in revenue.

JOYCE: Wilson says the money they'll make will also help lower greenhouse gases by underwriting energy conservation projects for consumers: winterizing homes, for example, or finding more efficient appliances.

Ms. WILSON: The good news is that people should be paying less for their electricity if you participate in energy conservation in a program.

JOYCE: Besides Maryland, the states holding the auction are Maine, Massachusetts, Vermont, Rhode Island and Connecticut. Four other states - New York, New Hampshire, New Jersey and Delaware - will participate in later auctions. What drives this market is a cap, or ceiling, for carbon-dioxide emissions that RGGI sets for each state. Over time, that cap will shrink, and the states will have fewer allowances to sell. Power companies will have to compete for these, and that will drive the price up. Eventually, that will force them to adopt new technology to lower emissions, hopefully by 10 percent in 10 years. RGGI's Jonathan Schrag notes that the U.S. Congress has been drafting several bills to create a cap-and-trade carbon market like this one for the whole country.

Mr. SCHRAG: RGGI really is setting an example for what a national approach to reducing greenhouse gas emissions, you know, might look like, how that might work.

JOYCE: At the moment, the cap is pretty generous for carbon emissions. As the cap shrinks, demand for allowances could exceed the state's supply. So the market has an escape valve. A power company can go outside of RGGI and pay someone else to reduce greenhouse gases somewhere else in the world, someone like EcoSecurities. The company finds opportunities to reduce greenhouse gases at a competitive price. And that creates carbon credits they can sell. EcoSecurities' Aimee Barnes says her company needs to know how much an American company is willing to pay, then they can go out and fund some gas-cutting projects.

Ms. AIMEE BARNES (Manager, Regulatory Affairs, EcoSecurities): Projects that reduce greenhouse gas emissions from manure at farms, or from landfills, reforestation projects, and from things of that nature. So that basically allows us to go out and figure out what kinds of projects there are in those realms that we can develop.

JOYCE: EcoSecurities is just one of many operators in this market who will be watching the auction closely. With 188 million tons of emissions up for sale in the first go-round, a lot of money will be changing hands in the name of a cooler planet. Christopher Joyce, NPR News.

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