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US states defy Bush with carbon trading plan

Individual US states are putting together a system to cap and trade greenhouse gas emissions, despite the Bush administration's opposition to the Kyoto protocol on global warming.

The regional-level initiative, led by the Governor of New York state, George Pataki, aims to be able to announce the details of a scheme by April. Nine north-eastern and mid-Atlantic states are taking part, with other states and some Canadian provinces involved as "observers" in the process.

The scheme could even link up with the emissions controls and trading system being established by the European Union next year, allowing emission allowances to be traded across the Atlantic. It is understood that informal talks have taken place between environmental officials of the US states and their European Commission counterparts.

The development will prove a major embarrassment to the Bush government, which provoked considerable condemnation in 2001 by pulling out of the 1997 Kyoto climate control treaty. Many believe that the Bush administration had hoped to kill off Kyoto by opposing it. However, the recent decision by Russia to sign up has meant that the treaty has been saved.

Some insiders even believe that unilateral action by US states will eventually force Bush to join Kyoto, by showing that it can work in the US.

Peter Vaborowsky, a managing director at Evolution Markets, a brokerage that specialises in the environmental markets, said: "There's no question that this turns up pressure on the federal government ... in the past when individual states have taken action on other pollutants, the federal government has then taken action."

The nine states in the project, which is known as the Regional Greenhouse Gas Initiative (RGGI), are Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. In addition, Maryland, the District of Columbia, Pennsylvania, are "observers", as are some eastern Canadian states.

Environmental officials from the states will meet in New York today, to try to thrash out some of the remaining technical issues yet to be resolved. It is hoped that the cap and trade scheme can be operational by 2007 or 2008.

Like the European Union, the US states are taking a market-based approach to curbing emissions of carbon dioxide, the greenhouse gas blamed most for global warming.

Industries covered by the schemes will be allocated emission allowances, in units of one ton of CO2 produced. Polluters can either try to reduce emissions or buy the allocations on a market of others which have.

It is thought that, as the US is outside Kyoto, Europeans will be able to sell US industries their allocations but the US allocations are unlikely to be recognised as a Kyoto-currency and so cannot be sold to the Europeans.

The US sulphur dioxide and nitrogen oxide emissions, which cause acid rain and smog, are federally regulated and traded. However, there is no federal regulation of CO2 emissions. The Kyoto treaty aims to reduce greenhouse gas emissions from industrialised countries by 5 per cent over the next decade.