Experts say nascent regulatory developments in both East Coast and West Coast states that would limit emissions and form cap-and-trade carbon markets could one day force the federal government's hand in forming a national law regulating carbon.

"That's the most likely scenario," said Eileen Claussen, President of Washington, D.C.'s Pew Center on Global Climate Change in an interview. "There's no question that the states are working to fill a vacuum that they see at the national level."

President George W. Bush pulled out of the Kyoto pact in 2001, arguing that it was too expensive and wrongly excluded developing nations from a first round of cuts in emissions.

In a cap-and-trade market, businesses have to trim emissions under set limits or buy credits to continue emitting from companies that have complied with limits.

Experts say big industry, such as oil refiners, manufacturers and refiners, would tire of the costs of complying with a US patchwork quilt of different laws and different markets. It could become so expensive that they would pressure the federal government to form a uniform law regulating greenhouse gases.

"If in fact, the regional movement gathers steam, this is going to be a nightmare for corporate America. That means that if (a car company) for instance, cuts emissions at its plant in California, they can't use that (for emissions credits) in New York," said Richard Sandor, Chairman of the Chicago Climate Exchange, a voluntary carbon dioxide market, where companies like oil major BP trade carbon credits.

New York Governor George Pataki, a Republican, helped form the coalition of East Coast states that plans to regulate carbon dioxide, by writing to governors of eastern states last year. It's now known as the Regional Greenhouse Gas Initiative (RGGI).

The group of nine Northeast and Mid-Atlantic states plans to form a carbon dioxide cap-and-trade market that will launch in 2008. Ahead of that, RGGI expects to begin limiting carbon dioxide emissions from power plants as soon as next spring, a RGGI source said. Power plants that cut emissions in 2005 would earn credits they could sell in 2008 to utilities that prefer buying credits rather than taking the expensive steps to cut emissions.

The same states that make up RGGI have already had success in broadening their regulation into a federal regulation on emissions, in particular nitrogen oxide emissions. "States taking action prior to federal legislation creates a quilt or patchwork that has historically led to calls for more uniform treatment," said a RGGI official.

California, the US state with the most cars, has already adopted the nation's first-ever rules to regulate car emissions linked to global warming and the West Coast Governor's Global Warming Initiative, a coalition of the California, Washington, and Oregon is moving toward creating cap-and-trade carbon markets.

But even with regulation plans forming, the United States will lag Europe. Next year all 25 European Union nations will start a mandatory carbon emissions trading system.