Nov 20 - Record, The; Bergen County, N.J.

New Jersey's lawmakers are poised to impose new pollution penalties on power companies the first step in determining who pays for contributing to global warming and who profits from preventing it.

By year's end, the Legislature is expected to approve a plan requiring the companies to pay for the greenhouse gases they produce, a charge that could amount to $70 million or more each year.

The system is designed to give companies an incentive to cut emissions. But in the short run, at least, the price of polluting is likely to be passed on to consumers. And that could test New Jersey politicians' newfound commitment to fighting climate change.

"We think that it's very important to avoid climate change sticker shock," said Rick Thigpen, a vice president at Public Service Electric and Gas, the state's biggest generator of both electricity and heat-trapping emissions. "If this is seen as just raising electric prices, then there's going to be a major potential backlash."

Environmental and business groups predict some bill will make it out of the Legislature's lame-duck session this fall. But negotiations have only just begun over some of the key details, from how much utilities have to pay to who divvies up the millions that could be raised for state coffers.

The legislation would authorize regulators to impose a so-called cap and trade system on utilities that emit carbon dioxide and other greenhouse gasses. New Jersey, New York and eight other states agreed to the plan two years ago, ordering electric companies to cut greenhouse pollution 10 percent by 2021.

Those are the kinds of pollutants that are trapping heat in the planet's atmosphere, setting the stage for increased flooding, worsening droughts and other potentially devastating changes to the climate. On Saturday, an international scientific panel issued yet another warning on the subject, saying the evidence for warming was "unequivocal."

New Jersey's plan would put a cap on carbon emissions statewide, starting at 23 million tons a year and ratcheting downward over the coming years. The state would give "allowances" to companies, one per ton of greenhouse gas. Businesses that find a way to lower emissions could sell allowances to those needing more. In theory, the market finds the best way to cut pollution.

But how free should that market be? Governor Corzine and environmental groups say the state should auction off all allowances to the highest bidder, rather than give utilities some or all of them for free. With bidding expected to start at $2 or $3 a ton in the early years, the process could raise up to $69 million annually for energy conservation, subsidies for solar power and other clean- energy projects and assistance to low-income customers hit with higher electric bills.

A full auction, proponents say, would avoid the mistakes of the European Union's two-year-old carbon trading market, which gave away credits for free. Electric rates still soared, even for utilities that had extra allowances.

"If you give the allowances for free to generators, they're still going to charge customers more anyway," said Dale Bryk, an attorney with the Natural Resources Defense Council in New York. "We should be using that money to reduce energy costs for consumers."

PSE&G isn't opposed to a 100 percent auction, said Thigpen, the company vice president. But the utility and business lobbyists in Trenton are pushing for concessions that they say would cushion the blow to power producers.

Some allowances could be sold at a reduced price, they say; others could be held back from the auction and released in the case of price spikes. PSE&G wants to see the state take more steps to ensure that customers don't simply shift to Pennsylvania utilities not covered by the greenhouse limits, Thigpen added.

The state Business and Industry Association, meanwhile, would like to see some companies exempted from the camp, such as small businesses or large companies that produce their own power and heat onsite. The association's also worried that the legislation leaves specifics of the process to state environmental regulators, said Assistant Vice President Sarah Bluhm.

"There are no checks and balances," she said. "When you're talking about potentially hundreds of millions of dollars at stake, that's worrisome."

Environmental groups are pushing in the other direction, trying to limit any exemptions or other loopholes. Matt Elliott, a clean energy advocate for Trenton-based Environment New Jersey, said he worries about letting companies claim credit for tree-planting and other projects whose ecological benefits are hard to measure.

"The utilities are trying to make sure the Legislature doesn't do this in as strong a way as possible," he said. "This is the Legislature's first moment to prove themselves and show that they're serious about their commitment, that they're willing to tackle global warming in the toughest way possible."

Everybody agrees they'd prefer a nationwide cap-and-trade system that put businesses across the country on a level playing field. But if that happens, some say, New Jersey's early entry into the field could help companies here who learn how to profit off clean energy and other carbon cutting measures.

"If we invest in this process the right way, we have the potential to stimulate a whole new sector of the economy," said Adam Zellner, a deputy environmental commissioner in New Jersey. "This will open up whole new doors for the state."

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How it works

What is cap and trade? A system designed to let the free market find global warming solutions. The state would cap greenhouse emissions from power plants and then sell or give away credits, one for each ton of emissions. Companies that find a way to cut pollution could sell credits to those that can't get below the cap.

Who's involved? New Jersey is part of a 10-state compact of Northeastern states that's promised to cut power company emissions 10 percent. New York, Maryland, Delaware and the six New England states are also on board.

What's at stake? It could cost companies $70 million a year to buy the credits. That will mean higher bills for customers. But the state would devote the revenues to solar and wind projects, energy conservation and other measures that could cut bills in the long run.

Why utilities? They're one of the major generators of greenhouse pollution, though experts say bigger cuts will be needed from vehicles and other sources to really solve the problem.

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E-mail: nussbaum@northjersey.com

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