Thank Heaven for the States Rights

These are the days that we should be grateful that the Founding Fathers built federalism into the Constitution and retained a strong governance role for the states.

Last Thursday, when the Capitol descended into conniption fits over high finance, was one of those days. Oh, and the renewable energy and energy efficiency tax incentives that expire December 31 have been caught in the maw of partisan tantrums also. Huge investments in wind and solar energy on tap for 2009 are circling the drain.

To paraphrase the late, great Barry Goldwater, we might be well served to saw off Washington, DC, from the rest of the country and let it float out to sea.

While the pols in DC were looking out for number one, states from one end of the country to the other were getting some useful work done for their citizens.

Start with the Northeast. Last Thursday, six of the 10 states in the Regional Greenhouse Gas Initiative — better known as “Reggie” — held the nation’s first auction of carbon dioxide emissions allowances under a cap-and-trade system.

The auction was a test drive. The emissions reduction rules don’t take effect until January 1, but the auction will help power plant owners figure out the lay of the land for allowance pricing and compliance planning.

Utilities and other power plant owners in any of the Reggie states can use auctioned allowances to comply with the region’s cap, which takes effect in 2012 and will fall 2.5 percent every year between 2015 and 2018.

There will be teething pain. Power plant emissions in the region are currently below the cap. That may require some adjustments, such as shrinking the supply of allowances to drive up their price and encourage utilities to work harder at cutting emissions.

Reggie will be closely watched for lessons to be learned on the other side of the country, where the Western Climate Initiative last week released a broad plan to cut greenhouse gas emissions 15 percent below 2005 levels by 2020.

The Western plan, covering seven U.S. states and four Canadian provinces, won’t be limited to power plants. Utilities and industries will face the cap in 2012. Transportation fuels will follow in 2015, along with fuels used by residential and commercial sectors.

Let’s not forget America’s heartland. Six Midwestern states have signed an agreement to develop their own cap-and-trade system.

If and when Congress tackles a climate bill next year, a sticky wicket will be the fate of the regional programs. Industries will press for federal “preemption,” a mandate for the state programs to bow before the almighty feds and disappear.

States that have gone to a lot of trouble establishing their own programs are not likely to give them up without a fight.

Several approaches have been suggested to resolve this dispute. A federal program could give states credit for early reductions. State-issued allowances could be incorporated into a federal program.

It wouldn’t be practical to leave climate policy entirely to the states. There are market efficiency and international issues that compel the need for a federal program.

But after observing last week’s dysfunction in DC, it would be mighty tempting.