Cap And Trade (And Sue)

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Once a pioneer in fighting greenhouse gas emissions, New York is now a different kind of leader -- it is the first state to deal with a challenge to its climate change regulations. WNYC’s Ilya Marritz reports on a lawsuit that has stymied New York’s plans to go green.

REPORTER: One year ago, ten states, from Maine to Maryland made headlines by creating the nation’s first cap-and-trade program to limit greenhouse gases.

NEWS ANCHOR: The results are in today after the first ever carbon dioxide emissions auction in the U.S.

REPORTER: Here’s how cap and trade works. First the cap: the states require each individual power plant to cut its emissions by ten percent over the next ten years.

Now the trade. To emit carbon dioxide, a polluter has to buy an allowance. If they emit too much, they can buy allowances from other producers who have cut their carbon dioxide output. Former New York Governor George Pataki helped create the system.

PATAKI: And I’m proud of that and as the national government looks to see what they should do, I think this would serve as an appropriate model.

REPORTER: Right now, though, it's an object lesson in the challenges of designing a market solution to a global problem. Michael Gerrard teaches climate law at Columbia University.

GERRARD: The lesson I would take is that whenever someone's ox is gored they will look for some legal mechanism to get ungored.

REPORTER: The wounded ox here is a gas-fired plant in Corinth, in upstate New York, owned by Indeck Energy. Unlike most other producers, Indeck has a long term contract to sell electricity to Con Edison in New York City. The price is fixed through the year 2015. Other producers can raise their rates to cover the cost of emissions credits. But not Indeck, says spokesman Peter Barden.

BARDEN: With this lawsuit, the only thing Indeck Energy is looking for is to be treated fairly like all of the other energy generators in the state.

REPORTER: Barden says Indeck is just getting squeezed.

BARDEN: We can’t look ahead much further than a year to determine what the cost is going to be of these allowances. Indeck Energy could be running its power plant at a loss.

REPORTER: This year, Indeck says, complying with cap-and-trade is costing about $1.5 million. And that sum could soar in the years to come, if the cost of emissions credits rises, as is expected.

But Indeck isn’t asking for a tweak to the program. In court, company lawyers have argued that New York has no authority to regulate greenhouse gases, that the plan violates the interstate commerce clause of the U.S. Constitution.

And so early next year, a state court will very likely decide whether to throw the whole program out and take New York State out of the cap-and-trade agreement.

Even if the court dismisses the suit, environmentalists say Indeck has done real harm. Dave Gahl is with Environmental Advocates.

GAHL: They have hurt the program tremendously because the moneys that were supposed to be invested in clean energy and efficiency sat there. And then the governor and the legislature took them for general budget relief.

REPORTER: Remember, how the proceeds of carbon auctions were supposed to go for energy efficiency and renewable projects? About $180 million has been raised so far, but it was frozen, pending the outcome of Indeck’s lawsuit.

And then, last week, the State Senate approved Gov. David Paterson’s request to take a blowtorch to that block of ice, and unfreeze half of the money, to help balance the state budget. Environmentalists are calling it a raid.

Still, Michael Gerrard, the climate law professor at Columbia, is optimistic. He points out that of 230 or so power plants up and down the eastern seaboard, only one has sued to block the program.

GERRARD: It is absolutely possible to have a cap-and-trade system that works, that seems to be free of market manipulation or corruption, people can figure out how to use it.

REPORTER: That’s a ray of hope, he says, that he’ll take with him when he flies to the climate talks in Copenhagen later this week.