Midwest carbon market talks get underway

A group of about 40 people are sitting down to design the nation's third regional carbon market. At the heart of it will be a process called cap and trade.

Five Minnesotans are joining the negotiations. They were selected,along with others from the other states, by the Midwest Governors Association to represent the interests involved in climate change regulations.

The meetings come as the Legislature plays tug-of-war with Gov. Pawlenty over how Minnesota should approach the negotiations.

DFL legislators have been trying to lay out principles they wanted the governor to stick to as he works with other states. But those principles have been watered down on the Senate side, partly at the urging of Edward Garvey, Pawlenty's point person on climate change.

"We always value legislative input," Garvey said. "The message that we've always said is, 'Make sure we have the flexibility to have these discussions, and don't pre-judge what the design of the outcome is,' because I don't know what lays ahead in these negotiations. All I know is I can commit to bringing back a strong plan that helps Minnesota achieve the goals."

Minnesota's goal is to reduce greenhouse gas emissions 80 percent below 2005 levels by the year 2050. The carbon market is seen as a cost-effective way to get there.

The government would set a cap, or limit, on greenhouse gas emissions from specific sources, and then issue permits -- or allowances to emit the pollution. Companies that can reduce emissions below their cap could sell their allowances to companies having a harder time.

One of the questions the negotiators will be wrestling with is whether all the states have to agree to the same requirements, or whether some states might choose to impose stricter controls than others.

It's OK if some states give away some or all of the carbon allowances, while others insist that businesses pay for them, says Bill Grant of the Izaak Walton League, the lone environmentalist on Minnesota's delegation. He says the important thing is, the market is big enough to work.

"The atmosphere isn't going to care where those emissions reductions are coming from precisely," Grant said. "The point here is to create as broad a trading area as possible, so as many lower-cost emission reduction strategies can be identified and made available to the market as possible."

But Grant says the market will work best if it includes as many parts of the economy as possible. Another negotiator from Minnesota is David Sparby, with Xcel Energy. He says some sectors, such as agriculture and forestry, will probably resist being included.

"All I know is I can commit to bringing back a strong plan that helps Minnesota achieve the goals."

"They will try to convince the regulators their sector is either too diverse to be regulated or too small, or perhaps too likely to be affected by the adverse economics that might result from the regulations," Sparby said.

Some industries have accepted the idea that their carbon emissions will soon be controlled at some level.

A national or even an international market would work best, says Mike Robertson, an environmental policy consultant with the Minnesota Chamber of Commerce. But he's working on the Midwest market in the meantime.

A big question is what goals the states will set for emissions reductions.

"I expect Minnesota's are the toughest goals that have been laid out by any state," Robertson said. "So that will be the measuring point, I think, for the discussion."

Robertson has often warned against being overly ambitious. He says he won't use the Midwest negotiations to try to water down Minnesota's goals.

"The whole objective will be to look at what kind of system could be put together to try to meet those goals, and then to determine what the economic impact would be for Minnesota and the region to try to achieve those goals," Robertson said.

The group hopes to have a plan for a Midwest carbon trading market ready by November.

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