Maine and other states appear poised to set up a system to reduce greenhouse gas emissions from power generation. Working regionally, in the absence of a national policy, is necessary, as is starting with energy before moving on to other sectors. Lawmakers should approve the compromise bill that will put this system in place.

The Regional Greenhouse Gas Initiative, which includes 10 states from Maryland to Maine, aims to cut greenhouse gas emissions by 10 percent by 2019. It would do so with a cap-and-trade system for greenhouse gases that rewards efficient use of fossil fuels and provides incentives for innovation. A cap-and-trade system works by governments setting a cap, or limit, below the current emission level from a specific source, power plants, for example. The emissions amount is divided into credits, which companies can trade, buying or selling based on their levels of efficiency and demand.

The RGGI model is not the brainchild of a liberal Democrat, but of former New York Gov. George Pataki, a Republican who encouraged Northeast states to work together to reduce greenhouse gas emissions when it became clear the federal government was not going to set national standards for doing so.

Under RGGI, fossil fuel-fired power plants will cap their greenhouse gas emissions in 2009 and reduce them by 10 percent by 2019. Power plants that are more efficient than required can bank their excess allowances for future use or sell them to plants exceeding their limits.

Maine will be allocated 6 million tons’ worth of carbon allowances or credits, all of which will be sold to plants that sell power to the electricity grid through an auction.

The money raised through auction will be put into a trust fund to support energy efficiency work and to reduce electricity rates for consumers. If credits sell for less than $5 a ton, all the auction proceeds will go toward investments in energy efficiency. When credits sell for more than $5 a ton, the additional money will go toward reducing electricity bills.

Putting most of the money the state receives from the sale of allowances into a fund aimed primarily at efficiency improvements makes more sense. Reducing electricity usage through efficiency costs less than half as much as building new generation facilities to meet demand. Maine’s spending on efficiency improvements is the lowest in New England.

The fund could be used to award grants for efficiency upgrades in manufacturing facilities, offices and homes. Efficiency upgrades – such as new motors or lighting – often pay for themselves within a year. Paper mills could receive these grants, which would lower their costs, while keeping the money and jobs in Maine.

Lawmakers also found a way not to penalize facilities that use combined heat and power systems to run their facilities. Under the revised bill such companies would not have to buy credits for the power they produce for internal operations.

Helping Maine’s electricity producers and users to reduce their carbon emissions through targeted grants and programs is a cost-effective way to meet the RGGI goals.