TRENTON, N.J. – New Jersey’s expected pullout from a 10-state pact to reduce greenhouse gas emissions is among the latest developments in a nationwide dispute over whether cap-and-trade programs work and what limitations states should place on energy producers to curb the heat-trapping gases blamed for global warming.

At the crux of the debate is an irony that those with competing priorities are unlikely to resolve: In order for cap-and-trade to be effective, it must come at a price — an added operating cost for energy producers, who then pass it on to customers.

Cap-and-trade programs set limits on the amount of pollution a company can release, require companies to get permits for each ton they emit and allow them to trade emission allowances using the market to set the price. The programs came into practice after the 1990 Clean Air Act.

But opponents say the programs hurt the economy when power plants pass the cost of buying emissions on to customers. They say emissions are dropping not because of cap-and-trade programs but because of the economic downturn and the reduced cost of natural gas, a cleaner source of energy.

Gov. Chris Christie announced in May that by the end of 2012, New Jersey would withdraw from the Regional Greenhouse Gas Initiative. He called the program a failure.

Emissions in the region are down about 30 percent below the cap, and the three-year-old program has generated almost $900 million in proceeds, including $105 million for New Jersey, according to RGGI Inc. Christie used more than $60 million to ease the state’s budget crisis, as officials have in other states.

There also is an excess of available permits, which are selling at just under $2 per ton — the absolute lowest allowed at the quarterly auctions where permits are sold. The number of bidders is steadily decreasing, from 82 at the first auction to just 47 at the most recent one in June. That eliminates any incentive for power companies to lower their own emissions so they can sell unused permits to other companies at a higher price.

“This leads people to think, ‘Well, what’s the deal with this program? This is a tax,’ ” said Paul Tesoriero of Evolution Markets, an emissions brokerage firm. “It causes people to question the validity of cap-and-trade.”

Almost everyone agrees the initial cap — which was set in 2005 — was way too high. Most expect it will be adjusted down at the next opportunity, in 2012. But program supporters say that is not proof the program has failed, and add that diverting the funds for other uses amounts to impairing the program’s success and then blaming it for failure.

“Christie got it right in one respect, which is that emissions are way down, and it’s not primarily due to RGGI,” said Peter Shattuck, carbon markets policy analyst for the nonprofit Environment Northeast. “Where he makes a jump is saying RGGI is a failure.”

The initiative established a long-term framework and sends a signal that unlimited emissions are a thing of the past, he said. Focusing exclusively on emission rates ignores the revenues the pact has generated for clean energy projects, Shattuck and others said.

“There’s no question the cap is inflated,” said Dale Bryk, director of Air and Energy Programs for the Natural Resources Defense Council. “The cap is not what’s reducing pollution. It’s the reinvestments in reducing energy costs, energy efficiency and downward pressure on demand.”

Elsewhere, cap-and-trade is in a period of uncertainty. California pushed back its planned 2012 implementation of a statewide trading system by one year. A Midwest initiative slated to start in 2012 has been delayed. In February, Arizona pulled out of the Western Climate Initiative, which is to be phased in starting next year.

Federal cap-and-trade legislation failed in Congress last year.

And New Hampshire lawmakers voted in March to pull out of the RGGI but Gov. John Lynch vetoed it.


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