How the Financial Crisis Could Lead to a Carbon Crisis

Updated 9/17

The meltdown in the financial markets, prompted by the bankruptcy of Wall Street powerhouse Lehman Brothers and the weakness of insurance giant AIG, could have a far-reaching effect, not only for the U.S. economy, but for the world environment.

Even before the latest meltdown, which has even more talking about a deepening recession, New York Gov. David Paterson had cast doubt on New York's fortitude on a groundbreaking global warming regulation.

Under former Gov. George Pataki, a Republican, New York developed the Regional Greenhouse Gas Initiative, and got nine other Northeastern states, from Maryland to Maine, to agree to join it in capping carbon emissions from power plants, setting up a regional market for carbon credits and ultimately driving down pollution that causes global warming from a major source.

The regulation doesn't go as far as other regional proposals in other parts of the country, like in the West, which is working on an economy-wide carbon cap. And it has been criticized for being too lenient -- allotting so many pollution credits, for instance, that a two-year decline in carbon emissions could be reversed without exceeding the cap, and aiming only for a 10% reduction in greenhouse gas emissions from power plants below 2009 levels by 2020.

But its importance as a pioneer in the field of government regulation of carbon emissions can't be overstated: It was the first on the books, it will control emissions in a part of the country that produces a huge percentage of the nation's pollution, and it is to be the first to market, when it begins next week.

Did I say when it starts next week? If may be the operative term.

Paterson, a Democrat, recently drafted an executive order that would give him more power to dilute regulations that businesses find onerous. And he refused to exempt RGGI ("Reggie," as the carbon cap-and-trade law is known by) in comments to the press.

The purpose of the executive order is to fortify New York against the collapse of its central industry, finance. That's where a hefty bulk of tax dollars originate. And Paterson penned the executive order before the news broke about Lehman Brothers and AIG. (Paterson has already stepped in on behalf of AIG to help it raise $20 billion from its subsidiaries -- as sign of how serious the health of these firms are to the state.)

So what now? RGGI exists only because of the leadership of New York, particularly Pataki and his short-lived successor, Eliot Spitzer. Now, the region and the world should have their eyes on Paterson, to see if he sacrifices "Reggie" for short-term gains.

In that, it's a larger test of resolve for a world that will have to make sacrifices if it is to confront global warming.

UPDATE (9/17): Environmental Advocates of New York has received a statement from Paterson, indicating he's going to stand behind RGGI. Here is the statement:

"Global warming is one of the greatest environmental and economic challenges of our generation. As a leader on renewable energy development in New York, I have worked to reduce our state's dependence on polluting fossil fuels. Despite recent inaccurate media reports, our Regional Greenhouse Gas Initiative remains on track. We are continuing to work with the nine other states and remain a part of this innovative and vital program."