Similar programs, in which businesses buy and sell the rights to release greenhouse gases, are being considered for extension nationwide under legislation in Congress that passed the House last summer and is pending in the Senate. It's also on the table for international action at rancorous United Nations climate talks scheduled to conclude Friday in Copenhagen.
"While Washington and the world debate this in Copenhagen, we've already exercised leadership and proved that cap-and-trade can work, said Malcolm Woolf, director of the Maryland Energy Administration, "and we are investing the proceeds in helping families and businesses."
Some business groups and conservative critics have warned that cap-and-trade regulation of greenhouse gases could cripple the U.S. economy, driving energy prices through the roof and putting millions out of work. Some economists and environmentalists also oppose the approach, arguing that it's too complicated and fraught with loopholes to make a real dent in emissions that threaten to drastically alter the world's climate.
But power companies in Maryland and the nine other states have been paying for the rights to emit greenhouse gases for more than a year with slight impact on consumers' electric bills. Baltimore Gas and Electric Co.'s residential customers are paying perhaps $1.25 a month more as the costs of the carbon-dioxide permits are passed through, said Constellation Energy spokesman John Quinn. That represents about 1 percent of the average household's electric bill.
Meanwhile, the state has collected more than $96 million in revenue from the six carbon-dioxide auctions held since September 2008, with the funds earmarked for providing relief from energy costs and ultimately reducing greenhouse gas emissions.
Specifically, half the funds this year go to help poor families pay their power bills, while nearly a quarter goes to provide a bit of rate relief for all residential utility customers - about 43 cents on the typical household power bill this winter, according to Quinn.
Another 18 percent goes into promoting energy efficiency and conservation, with an additional 6 percent earmarked to provide grants and low-interest loans for homes and businesses to install "clean" energy systems.
Frank and Lois Bohdal are among more than 600 Marylanders this year who have received state grants funded in part with carbon-auction proceeds to help them put in home solar, wind or geothermal energy systems.
Bohdal, a computer programmer with the state comptroller's office, has blanketed the south-facing roof of the couple's Millersville rancher with 40 solar panels. They cost a total of $55,000 - but the state helped cover their installation with nearly $14,000 in grants. And the electricity they generate has reduced the couple's power bill by nearly a third.
"So far, it's been worthwhile to me," said Bohdal, who notes that he was able to cover about half the upfront costs with federal and local tax credits.
Some of the carbon-auction funds also are going into retrofitting low-income apartment complexes with better insulation and energy-efficient appliances and lighting. The state recently awarded grants to fix up the 158-unit Sierra Woods apartments in Columbia and another complex in Montgomery County. Using the auction proceeds and federal stimulus funds, the state hopes to work on nearly 1,600 apartments this year.
"We do believe that in the long haul it will help make these properties and the rents more sustainable for our residents," said Pat Silvester of the state Department of Housing and Community Development, which is overseeing the projects.
The regional effort in the East has inspired similar collaborations of states in the Midwest and the West, and supporters believe it helped build support on Capitol Hill for the cap-and-trade plan to curb greenhouse gases that is written into the bill that passed the House in June. A similar approach is being considered in the Senate.
But some note that the greenhouse gas initiative wasn't much of a test of the idea of using the market to achieve pollution reductions, since states purposely set their caps on carbon dioxide above what power plants were emitting at the time. The price of pollution allowances sold by the states have ranged between $2 and $3.50 per ton, while the Environmental Protection Agency estimates carbon credits would sell initially for $12 to $15 per ton under the more sweeping cap-and-trade approach in the House bill. A congressional budget analysis found that the cost per household in higher energy bills would average $175 a year.
Maryland officials say the states intentionally set a loose-fitting ceiling on carbon-dioxide emission for the first few years so power plants could get used to paying for pollution allowances.
The plan is to gradually reduce the allowable emissions 10 percent by 2018, ultimately making the allowances more valuable, and costly.
Bids for the carbon credits through six auctions have been within the range projected by the states, but they've trended downward lately. In the most recent auction December 2, carbon dioxide allowances went for $2.05 each, down from a high of $3.51 per ton in March. And for the first time two weeks ago, the states were unable to sell all the allowances they had put up for bid on future emissions.
Karen Palmer, an economist with the Washington think tank Resources for the Future, said bidding appears to have cooled on the regional carbon auctions partly because of uncertainty about how it would be affected by federal legislation. The bill that passed the House would effectively replace the regional power-plant curbs with a nationwide cap on all greenhouse gases, though the pollution credits sold under the regional auctions could still be used to help meet the new, more rigorous federal control scheme.
Another reason for declining bids, Palmer said, is the slumping national economy, which has reduced the demand for carbon-dioxide permits now. Power plant emissions have declined as the business downturn lowered demand for energy, she pointed out.
With recent auction proceeds less than projected, that's forced the states to pare back what they can expect to get and spend on energy programs. In Maryland, though, Woolf says the drop in carbon-auction proceeds has been made up for by an infusion of federal economic stimulus funds earmarked for energy efficiency and clean energy efforts.
"The ultimate goal was always to demonstrate for the country that a cap-and-trade system could work," said Shari T. Wilson, Maryland secretary of the environment. "Really, that goal has been accomplished."
Some argue that imposing a tax on carbon would be a better way to reduce greenhouse gas emissions. They acknowledge, though, that cap-and-trade garnered support, at least initially, from businesses and from many environmentalists.
Charles Komanoff, co-director of the Carbon Tax Center, said some green groups evidently believed the market plan would be a "stealth" way to tax carbon, and he contended that businesses were looking to write special deals for themselves into the complicated House bill, which runs to more than 1,000 pages. Senate action has been delayed by debate over health insurance reform, though members also remain split over the bill's economic impact and some even question scientific evidence of climate change.
The regional experience with cap-and-trade has won over Constellation Energy, it seems. "We were supportive of an experiment," said company spokesman Quinn, "that a market-based system that put money back into solving the problem wasn't a bad idea."
Now, he added, "It's time to do a comprehensive program, rather than piecemeal it." The company's chairman and CEO, Mayo A. Shattuck III, issued a statement at the beginning of the UN climate summit supporting an international accord committing the United States and all other countries to reducing global emissions of greenhouse gases.