NEW YORK (Fortune) -- The Chicago Climate Exchange may have pioneered greenhouse gas markets in the United States, but now the group that built the house may get locked out.

California is poised to establish the first mandatory cap on greenhouse gases in the United States - a move that makes moot the voluntary CCX cap there - and earlier this month a powerful lobby of nineteen northeastern environmental groups, led by the Natural Resources Defense Council, distributed an open letter nationwide urging states and municipalities not to join the CCX's exchange.

Why the anti-endorsement? The groups say laws should be created in an open process, not created privately by industry. And they point out critical faults in the CCX's design that could let its members off easy.

Complaints about the details of the CCX's system - that it lacks transparency, its standards leave loopholes, and it wouldn't lead to dramatic carbon reductions - are nothing new.

"It's a noble experiment," says Andrew Ertel, CEO of environmental trading firm Evolution Markets. "But it's got a lot of hurdles in its way."

The gripes though, always fell second to the fact that the market was doing something to address climate change now, while the government was still dithering about what to do later. What's changed now, says Gale Bryck, an attorney at NRDC, is that several state-led regulatory initiatives in the East, and California's law to cut emissions by 25 percent by 2020, may soon present a superior alternative.

"It's a turning point in that the time for voluntary measures are over," Bryck says. "I wouldn't say we want the CCX to disband, but hopefully it will be superseded."

The NRDC, which also sponsored the California cap, sees the most promise in an eastern seven-state agreement called the Regional Greenhouse Gas Initiative - a plan that has been several years in the making. The RGGI passed a milestone recently when it issued its final set of rules, calling for a 10 percent reduction from 2009 levels in power plant Co2 emissions over ten years, after it goes into effect in 2009.

As long as the signatory states - Vermont, Maine, New Jersey, New Hampshire, New York, Connecticut, and Delaware - approve the final rules, it would be the first multi-state alliance for a mandatory cap in the United States. (Vermont already passed a cap, Maine and New Hampshire will have to return to their legislatures, and the rest are expected to approve final rules administratively this fall.)

Taking California's initiative into account, most agree that it's only a matter of time before the federal government, which has debated several pieces of similar legislation, sets a nationwide cap.

If all this goes as planned the result will be a lot like our own miniature version of the Kyoto accord - not an actual exchange like the CCX, but a set of governing rules that would create a fresh set of laws and new credits that are, in effect, both stricter and a different currency from those conceived and used by the CCX today. (The CCX acts in two capacities: a rule-maker that creates credits, and an exchange that trades them.)

With the RGGI, for instance, New England emitters could still join the CCX, but any reductions they register there won't be eligible for credit on the RGGI regime. And, says Bryck, the RGGI's cap fixes many of the problems inherent in the CCX's rulebook.

Chief among those concerns is that the CCX leaves the possibility for a company's baseline emissions limit to move upward as long as their operations also increase - meaning there could be a fixed cap for 10 power plants, but if an 11th is built, the ceiling can move up. The result is more like an intensity cap than a firm carbon ceiling that ensures the nation's net GHGs go down, according to a report issued by Environmental Defense. And conceivably, that means a member company might get credit for reducing GHGs while its emissions actually go up.

Environmental Defense also worries about overlap in the type of reductions the CCX credits cover. One member, for instance a manufacturer, might get credit for using less electricity on the assumption that less power production meant less carbon emitted at the source. Yet at the same time the power generator may just sell that capacity elsewhere, or worse, get duplicate credit for not producing it at all.

RGGI will protect against this by only enlisting power plants - much like the system in Europe - but the CCX says its experimental model stands to have greater impact by including everyone. "We do allow a finite amount of double dipping theoretically," says Richard Sandor, founder and CEO of the CCX, noting that there are also protections in place against abuse. "But it's a pilot and we hope it has motivated some people to make changes on the user side."

The CCX says its primary goal is not to short-circuit law-making, but to inform the debate with as many diverse voices as possible. On that the NRDC would agree. Bryck says she would like to the see the CCX provide the market mechanism for trading RGGI or California credits, much like it has successfully done in Europe, where its exchange has an 80 percent market share of trades under the Kyoto mandate.

"It's up to the private sector to develop a trading system, that's where the expertise of the CCX really comes in," she says. "It's states that should be in the business of making policy."

That may well be, but even with California's cap and RGGI on the horizon, it's hard to forget that it was the CCX that did it first.