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The Northeast's effort to reduce greenhouse gases could become a national model, participants say.

By JOHN RICHARDSON, Staff Writer September 30, 2008

A regional cap-and-trade system to fight global warming is off to a successful start following a $39 million auction of pollution allowances last week, officials in Maine and other participating states said Monday.

"Things went very smoothly for the initial launch," said Maine Department of Environmental Protection Commissioner David Littell. "It shows that clearly this can work."

Maine is one of 10 Northeast states participating in a mandatory market-based effort to reduce greenhouse gas emissions that many say could become a national model. Under the system, large power plants must buy pollution allowances in order to burn fossil fuels and release carbon dioxide starting next year.

The first electronic auction of carbon allowances took place Thursday, and the initial results were released Monday morning. Each allowance for one ton of carbon dioxide emissions sold at the auction for $3.07, a value that was within the expected range. All the allowances put on the auction block – more than 12.5 million – were sold.

Maine sold more than 870,000 allowances and raised more than $2.6 million, virtually all of which will be used to pay for energy-efficiency programs in the state, Littell said. A trust created to allocate the money is expected to put the initial round of funding into home weatherization and heating-efficiency programs for low-income Mainers this winter.

"It couldn't be more timely for Maine," said Steve Hinchman, an attorney for the Conservation Law Foundation.

Hinchman and other conservation advocates said the auction results are a solid first step toward a market-based system to curb global pollution.

Maine is one of 10 states that comprise the Regional Greenhouse Gas Initiative, or RGGI (pronounced "reggie"). The states did not disclose many of the auction's details, including who bought the allowances and how many. They did say most of the bidders were large power plants. Other bidders are believed to be investors who will sell the allowances on the secondary market.

It's unclear how many of Maine's six largest power plants placed bids in the first auction. There will be several more auctions in the first year, and many were waiting to see how the first round went.

"A bid that we put in was accepted," said Bill Cohen, spokesman for Verso Paper, which owns power plants at two paper mills – one in Jay and one in Bucksport – that will need allowances to operate next year. Cohen said he did not want to discuss details of the deal because the bid hasn't been processed and certified yet.

Cohen said that although the auction was real, "it was a test to feel out how it was all going to work, especially being the first of its kind. I think it went very well."

The $3 price for a carbon allowance – assuming it holds up in future auctions – will be factored into the cost of producing power in the Northeast. It is expected to add between 1 percent and 3 percent to electricity rates, according to state officials.

But because the states will spend the revenues on energy efficiency in an effort to reduce peak demand and avoid the need for new power plants, officials say the cap-and-trade system will ultimately lower the cost of power for ratepayers. "It should reduce greenhouse gas emissions and it should reduce overall energy prices in the Northeast," said Littell, the DEP commissioner.

Jon Reisman, an associate professor at the University of Maine at Machias, opposed the cap-and-trade program when it went before the Maine Legislature last year and said Monday the initial auction did not erase his concerns. All of the effort and money spent on the program will do virtually nothing to slow global warming, he said, because the program affects a tiny percentage of emissions.

"Is it really going to address this supposedly catastrophic problem? I don't think it is," he said. "If it is a first step,...