Sept. 29 (Bloomberg) -- Permits to release a ton of carbon dioxide from generating electricity in 10 Northeastern states sold for $3.07 each in their first auction as the U.S. begins putting a cost on businesses that add to global warming.

Fifty-nine bidders took part in the Sept. 25 sale, Regional Greenhouse Gas Initiative Inc., or RGGI, said today on its Web site. The organization of 10 states including New York, pronounced ``Reggie,'' requires fossil fuel-burning power plants to have a permit for every ton of CO2 they pump into the skies.

Reggie, the first U.S. market for allowances, aims to reduce global-warming gases by 10 percent by 2019. Permits sold for 65 percent more than the $1.86 floor price, a sign that buyers believe pollution rights may gain value over time, said Steve Schleimer, energy and environment market regulation director for Barclays Plc.

``People are probably seeing value in buying and holding,'' Schleimer said today in an interview. ``If you look at the back end of the program, it does become a short program,'' he added, referring to planned cuts in future years.

Reggie, which takes effect Jan. 1, is touted as a potential model for Congress, which is debating a national cap-and-trade plan to control greenhouse gases blamed for rising temperatures and sea levels. One proposal would allow permits issued in state programs such as Reggie to be used in a nationwide regime.

``This is the first major successful auction in the world of CO2 allowances,'' Robert Stavins, director of the Harvard Environmental Economics Program in Cambridge, Massachusetts, said in a statement. ``More importantly, that a future U.S. federal cap- and-trade system is likely to use allowances that are at least partially auctioned off, it is important to observe RGGI's auction and learn from it.''

Oversupply to Diminish

During Reggie's first three years, the 10 states will supply enough permits to release 188 million tons of carbon dioxide a year. That's about 9 percent more than 2007 emissions in the region, according to the Rockport, Maine-based consulting firm Environment Northeast. The number of annual allowances available will fall 10 percent by the end of 2018.

All 12.57 million permits offered were sold in the closed- envelope auction. Bids for more than 51.7 million allowances were received.

Expecting an oversupply in the first year, Barclays on Sept. 25 forecast permit prices of less than $2 a ton, or 7.5 percent above the minimum bid allowed.

But Reggie allows utilities, investors and other buyers to acquire and hold permits over the life of the program, Schleimer said. An increase in global-warming emissions in the region will translate into higher demand for permits, he said.

Incentive to Change

``Over time, as load in the region is growing and new plants are coming on line, there's going to be a point where there are 188 million tons made available and emissions will exceed that,'' Schleimer said. ``That's one reason to see value in it.''

Power utilities probably need to see higher permit prices to commit to new energy-efficient generators, said Kate Hampton, head of policy at Climate Change Capital, a London-based fund management company. Prices need to be about $3.75 or higher to discourage using older, dirtier coal-fired plants, she said.

The clearing price ``will provide a learning opportunity,'' Hampton said today. ``You do need a higher price than that to provide a significant incentive for efficiency'' in generation, to produce more power for the same pollution.

Allowances need to be at $10 or more to prompt power utilities to change their behavior and lower emissions substantially, said Seb Walhain, the Amsterdam-based head of environmental markets for Fortis. ``I'm not a big fan of RGGI'' because it's likely oversupplied, he said.

Futures

The auction raised $38.6 million for the states to use to cut electricity demand and generate cleaner, renewable energy. The next allowance auction is set for Dec. 17.

``The first RGGI auction has successfully used market forces to set a price on carbon and this will send a clear market signal to support the investment in clean-energy technologies,'' Pete Grannis, commissioner of the New York State Department of Environmental Conservation, said in a statement.

Reggie permits for December 2009 slid to a record low of $3.25 cents today on the Chicago Climate Exchange. The futures price rose to $3.92 at 1:19 p.m. New York time. The program also includes New Jersey, Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, Rhode Island and Vermont.

European Union emission allowances for December fell 1.45 euros, or 5.9 percent, to close at 23 euros ($33.10) a metric ton on London's European Climate Exchange. Europe's emissions trading program also covers large manufacturers.

To contact the reporter on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net.

Last Updated: September 29, 2008 13:45 EDT