The first mandatory US inter-state carbon trading system will open tomorrow with the auction of carbon permits to power -stations. It will be widely watched across the country for lessons in how a nationwide cap-and-trade system could function. The long-awaited Regional Greenhouse Gas Initiative, or RGGI (pronounced Reggie), places limits on the amount of carbon dioxide that 233 power stations and factories in 10 north-eastern states can emit. Companies will buy, at auction or from each other, permits to cover the amount of carbon dioxide they produce over three years from 2009 to 2011. It is the first time that power generators in the US have been placed under such an obligation, though some have voluntarily traded in carbon credits before now. Both presidential candidates have pledged to introduce a federal cap-and-trade carbon system, so RGGI is seen as a potential template. Jonathan Schrag, executive director, said: "It will be an example to the [federal] government and other states of how cap-and-trade can work." The first auction, of 12.5m carbon permits, will be held from 9am to midnight tomorrow, with six states taking part. The other four are finalising arrangements but will join by early next year. There will be 14 auctions before the end of 2011. Industrial installations - power plants and companies operating their own generators - with a generating capacity of more than 25 megawatts from fossil fuels are included in the scheme. However, Henrik Hasselknippe, global head of carbon analysis at Point Carbon, a carbon analysis company, was sceptical about the scheme, warning that too many carbon permits had been allocated to the companies covered in the first year. "This is bad news," he said. It would mean that companies faced little incentive to cut their emissions, and would leave the price of permits very low. Mr Schrag pointed to the floor price of $1.86 per tonne of carbon dioxide and said: "If there is over-allocation, it is short term". He said states would start to ratchet down the carbon cap, with plans in place to start reducing the cap by 2.5 per cent a year from 2014, resulting in a 10 per cent cut in emissions by 2018. "Once the mechanism is in place it's easy to adjust. I look at [something] like a geyser in the ground: RGGI is putting a faucet on top, and it's for the state governments to turn the tap." The states involved are: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont. Copyright The Financial Times Limited 2008