Dale Bryk, a lawyer for the Natural Resources Defense Council, who is advising the RGGI, said New York organizations representing consumers, the Attorney General's office and the New York Electricity Consumers Council, have weighed in favor of a 100 percent auction of the allocations.

Last year, the European Union gave away all of its permits that businesses needed, which sent carbon prices crashing.

Carbon markets work by forcing businesses to emit under set limits. Companies that chose not to meet that limit can buy credits for their emissions from businesses that meet the cap.

It is hoped that in an auction only the dirtiest power plants that are genuinely short on permits would be the strongest money in the market, and prevent already-clean plants from receiving and hoarding an overabundance of credits, Bryk said. The latter is what caused a drop in the EU's market.

New York state officials could not be immediately reached.

Five of the other RGGI states -- Maine, New Hampshire, Connecticut, New Jersey and Delaware -- are still debating how to disperse their carbon permits. "We think New York's proposal will have an enormous influence on what the other states decide to do with their allowances," Bryk said in an e-mail.

Vermont plans to auction its permits, but it has only limited power generation in the state.

Business groups including the Independent Power Producers of New York have said that an auction of carbon credits could raise the price of emitting the gas, shut down generators and lead to reliability problems.