States anxious as Obama shapes climate policy

U.S. states have spearheaded moves to curb global warming and are not ready to pass the leadership baton to President Barack Obama.

Regional markets to trade air pollution credits, aimed at cutting emissions that heat the planet, could be overshadowed by a federal system Obama sees as central to his environmental policy.

But states plan to proceed with their own emission control programs until the White House and Congress pass a credible federal market mechanism such as cap-and-trade to meet Obama's targets for greenhouse gas cuts.

State officials say the federal program might never happen, or be too weak to help reduce the chances of catastrophic droughts, floods and heat waves from global warming.

There is no guarantee that this federal program will in fact come into existence, said the California Environmental Protection Agency's Michael Gibbs.

We need to continue to press ahead, said Gibbs, the top state official working in the Western Climate Initiative, a group of 11 U.S. states and Canadian provinces that plan to start trading in 2012.

Ten Eastern U.S. states in January set emissions limits that get tougher over time. The program requires power companies to obtain permits to pollute and allows them to sell excess permits to companies that lag their own targets. This system is designed to push companies to conserve energy or switch to cleaner fuels such as natural gas.

New York is the biggest polluter in the group known as the Regional Greenhouse Gas Initiative. The state's Climate Change Director Peter Iwanowitz said he welcomed federal action as long as New York had room to be tougher and experiment.

We would always want the option to sort of break off and do it ourselves, he said.

Obama wants to cut carbon emissions to 1990 levels by 2020 and 80 percent below that by 2050, which is in line with California's goal and international plans.

Leaders in Congress want to introduce a climate bill this year, but interest groups already are lining up to soften the targets or to prevent a plan from going forward.

Industry also is wary of inconsistency. It ought to be passed at the federal level and not have a patchwork of regulation at the state level, said Duke Energy Corp spokesman Tom Williams.

INNOVATION LABS

The devil is in the details. The regions differ on specific reduction targets, how many greenhouses gases they track and whether to regulate transportation as well as industry.

Some systems give credits for cutting pollution outside the region -- by saving endangered rainforest, for example -- while others limit such so-called offsets. And the Western plan includes Canadian, and potentially Mexican, provincial and state governments.

The Western group may give away a substantial number of credits to polluters. The Eastern plan's biggest gift to global carbon markets has been proving that polluters, speculators and environmentalists will buy tradable permits in auctions. The revenues can help customers deal with costs of carbon regulation.

RGGI auctions off permits every quarter and so far the first three auctions have raised $263 million for the states.

Obama's budget plans said national auctions could raise $646 billion from 2012 to 2019 and fund clean energy investments and tax cuts.

AMBITIOUS STATES

Allowing states to set more stringent standards than the federal system would not be simple. Without adjustment to the system, a California power producer that meets tough state efficiency standards could simply sell unneeded credits out of state -- so total U.S. carbon output would not be affected.

Environmentalists say one plan would be for states to set local premiums -- requiring companies to buy 1.1 tons of federal credit for every ton of pollution allowance needed.

Dereck Walker, director of Environmental Defense's California Climate Change office, said there are no unmanageable state-federal conflicts. But he added, Let's not be naive. Congress is going to want to put their strong stamp on federal policy ... they don't want to just take things at the state level.

Derek Murrow, the director of policy analysis at Environment Northeast, said the tougher the federal plan, the more likely Washington will argue that it preempts the states.

But that doesn't mean states will be willing to give up the role to be laboratories for innovation, he said.