But bids in the auction may be soft because CO2 emissions in 2007 were about 9 percent below the cap the group set on emissions of 188 million tons of carbon dioxide, according to Environment Northeast, a green group that helped form the market.

"Overall we feel like prices are likely to be relatively low," said Derek Murrow, director of policy analysis for Environment Northeast.

Data through June this year shows that 2008 emissions could be similar to last year's, the group said, though if air conditioning demand rises in coming months, emissions could rise.

At stake is whether a market painstakingly set up by the 10 states since 2005 will do much to cut emissions of the main greenhouse gas and slow global warming.

Jonathan Schrag, RGGI's newly appointed executive director, said the group could retire allocations if they fail to sell in the auction for the US$1.86 per ton reserve price. That could help remove excess supply, bring up prices, and make it more painful for companies to pollute. RGGI could also toughen the emissions cap by reducing the allowed emissions, but that could take about three years to execute.

Murrow said RGGI may have already indirectly cut future emissions in the region by making companies hesitate to build any new plants fired by coal, the dirtiest fuel. A new coal plant would likely have to buy emissions permits because the cap gets tougher over time, with a 10 percent reduction in emissions by 2018.

Carbon emissions fell in the Northeast last year as generation rose from nuclear power, which emits virtually no greenhouse pollution, generators burned more cleaner-burning natural gas rather than oil as prices fell, and as economic growth slowed, Environment Northeast said.

Another reason the auction later this month could be less than spectacular is that New York, New Jersey, Delaware and New Hampshire, states that represent 55 percent of the cap, failed to finalize regulations in time and will not be offering their permits. The states may participate in the next auction in December or in other ones next year.

Environment Northeast said the permits should sell for between the US$1.86 reserve price and US$5 per ton. RGGI futures on the Chicago Climate Exchange have recently been valued at either side of US$5 a ton. (Editing by Matthew Lewis)