Interstate, international CO² cap-and-trade system

Minnesota, five other Midwestern states and the Canadian province of Manitoba are on the cusp of a cap-and-trade program designed to cut greenhouse gas emissions by up to 20 percent by 2015 without damaging the region's industrial and agricultural base.

In the absence of federal action during the Bush administration, the governors of Illinois, Iowa, Kansas, Michigan, Minnesota and Wisconsin and the Manitoba premier signed the Midwestern Greenhouse Gas Reduction Accord in 2007. The pact included reduction targets. The Midwest governors, including Minnesota's Tim Pawlenty, then directed a 42-member advisory group to make recommendations for the design of a regional cap-and-trade program tailored to the economic and energy circumstances of the region.

The group of strange bedfellows made their recommendations earlier this month.

"These diverse stakeholders pulled together, despite differences, and proposed an innovative cap-and-trade framework for America's heartland that meets ambitious environmental goals, reduces costs and incentivizes the transition to a low-carbon energy economy" said Brad Crabtree of the Great Plains Institute, which guided the advisory group. The group included officials from Xcel Energy, the Izaak Walton League, the Iowa Farm Bureau, 3M Co., Conoco Phillips and ADM, the big ag processor and ethanol producer.

This is good because it shows that industry, regulators and environmentalists can find common ground on what most scientists say is a huge challenge. Moreover, it also is a great opportunity to develop a leaner, more energy-efficient economy that substitutes efficiency and cleaner energy sources for imported oil. It also addresses coal.

Essentially, a cap-and-trade system puts a ceiling on the amount of carbon dioxide that can be emitted, and heavy polluters can buy credits from companies or governments that slash emissions below the target levels sought from a baseline year, in this case, 2005.

The Obama administration is in negotiations with Congress on a national cap-and trade system, which may negate the state accords in the long run.

"The governors' top priority is to see a federal bill passed," Crabtree said. "In the near term, these recommendations will inform our regional congressional delegation of our priorities. We now have a Midwest voice in the process. And there are ways to take the abundant Midwest coal resource and turn it into an advantage. There are opportunities."

The carbon debate

Some folks want to do nothing. Others prefer a straight-up carbon tax. This task force was asked to develop a cap-and-trade system. Crabtree, who worked on industry-environmental issues for years with Great Plains, likes cap-and-trade for its flexibility.

"For one thing, a uniform tax is not that simple," he said. "Everybody will lobby for their industry against the tax for special treatment. North Dakota, where I live, has oil and coal reserves and powerful senators. The road to a climate deal runs as much through Bismarck as Boston or New York."

Crabtree said the cap-and-trade alternative allows sectors that can reduce emissions more cheaply to go ahead and allows vulnerable industries, such as coal-fired utility plants, to buy time.

Meanwhile, promising research continues on cleaner coal plants and uses for the carbon dioxide, including pilot plants that are using the dirty exhaust to stimulate growth of oil algae that can be converted to diesel fuel.

The states plan to charge a small fee for every permit received by power plants and other polluters. The recommendations are being reviewed by the governors. The advisory group did not specify how much each permit, or allowance, should cost. But previous suggestions ranged from $2 to $4 for every ton of carbon dioxide emitted, according to ClimateandEnergy.org.

The national climate bill being debated in the House Energy and Commerce Committee has been amended to allow industry to receive 85 percent of all allowances for free, in the beginning. Opponents say that gives big polluters a "windfall" of allowances, which they can trade on secondary carbon markets for a profit or use to pollute for free.

Rep. Collin Peterson, D-Minn., a powerful congressional veteran whose district includes much of the western part of the state, also is pushing for a more-lenient bill for agriculture and utilities. He's at loggerheads with a lot of his fellow Democrats. President Obama has indicated he'll support reasonable deals.

The Midwestern plan strikes a balance, supporters say, because businesses could determine costs beforehand, while still providing revenue for energy efficiency and renewable energy projects through the purchase of allowances.