Trading up to green; Compact's carbon credit auction a positive step.

COLUMN: IN OUR OPINION

This week's first-in-the-nation auction of carbon credits by the Regional Greenhouse Gas Initiative, a compact of 10 Northeastern states, marks the opening of a creative approach to controlling air pollution that is grounded in good science and proven economics. Best of all, it bypasses the all-too-familiar unfunded mandates imposed by Washington on the rest of the nation.

The six New England states, along with New York, New Jersey, Delaware and Maryland, have agreed to cap emissions by power companies of the major greenhouse gas, carbon dioxide, at the current level of 188 million tons per year through 2014. After that, emissions must be reduced by 2.5 percent annually for a 10 percent reduction by 2018.

Utilities that exceed their CO{-2} reduction goals can sell their carbon credits to those that fall short.

The approach is modeled on the cap-and-trade system used in the Northeast to reduce acid rain by limiting emissions of sulfur dioxide and nitrogen oxides. Since 1990, sulfur dioxide emissions have been reduced by about 40 percent, nitrogen oxides by more than 50 percent.

Cap-and-trade is the right approach for reducing CO{-2} emissions for several reasons.

First, it offers power producers several years to ramp up their conservation efforts, including the further development of alternative energies that do not contribute CO{-2} to the atmosphere.

Second, it provides flexibility in case of price spikes and offers a generous system of "banking" pollution allowances.

Finally, electric system operators in each state are empowered to gradually retire a small portion of the state's emissions allowance, locking in environmental gains as industries make a habit of cleaner, greener energy.

The CO{-2} program alone won't solve the region's energy and environment challenges. Nuclear power, for example, must play more of a role. A September 2007 report found that New Jersey will need to renew the licenses of its four nuclear plants if it is to reach the 2018 CO{-2} reduction goals, under even the slowest economic development models.

Nonetheless, this week's carbon credit auction is a bold step in the right direction, demonstrating states can act together and in their best interests, even as Washington remains full of hot air.