Looking Ahead

The following is a reasoned, thoughtful commentary from Ken Silverstein, the Editor of Energy Biz Insider:

September 8: Energy Risk - California's Laws

California's trend-setting energy and environmental laws are a noble but risky effort. While they are serving to create a new economy, the rules may also be hamstringing some utilities and businesses.

Green energy experiments are not new to California, but this undertaking is more aggressive. The state, which now gets 11 percent of its power from renewable energy, has always taken a progressive posture toward expanding its sustainable base. The problems, though, are that wind and solar resources are limited while the cost of compliance may be too high for some.
California is the first state to set a statewide cap on greenhouse gas emissions. The law, which took effect in 2007, requires utilities and refineries to quantify their levels of greenhouse gases.

By 2011, the California Air Resources Board must write the rules for industry to live by -- essentially reducing carbon dioxide and other greenhouse gases to 1990 levels and to do so by 2020. That would amount to a 25 percent reduction from today's levels. By 2050, the state's goal is to cut such releases by 80 percent.

"As the popularity and importance of these renewable portfolio standards have increased, so too has the need to keep up with the design, early experience, and projected impacts of these programs," says Ryan Wiser of Berkeley Lab's Environmental Energy Technologies Division. He adds that existing renewable portfolio policies in the 26 states that have enacted them would require roughly 60 gigawatts of new renewable capacity by 2025, which is the equivalent of 15-percent of projected electricity demand.

But these goals coincide with other projections. In California, the population is expected to increase by 47 percent over the next couple decades. A San Jose Mercury News story laid out the challenge by saying that California produced 426 million metric tons of carbon dioxide in 1990, or more than 31,500 pounds for every person in the state. By 2020, the state needs to slash that to 21,400 pounds per person.

The challenges are already mounting. Automobiles, for example, are responsible for about 20 percent of all the state's greenhouse gas emissions. But the federal government and manufacturers are currently battling California as it relates to tailpipe emission rules adopted in 2002.

"As the world leader on climate change, we must do as much as possible," writes California Assembly Speaker Fabian Nunez, D-Los Angeles, in a letter to Gov. Arnold Schwarzenegger. Beyond the renewable portfolio standards and tailpipe regulations, the state plans to reduce greenhouse gases by growing trees and mandating energy efficiency rules for all commercial buildings.

Change Happening

Proponents of the law say that the technologies currently exist to cut all harmful pollutants, particularly carbon emissions. Voluntary efforts won't be as effective as tough regulatory standards, they add, noting that law will create opportunities. That is, when companies have to reduce emissions, they buy the most state-of-the-art equipment. That, in turn, creates jobs while promoting a healthier environment.

Last year, more than $100 billion was spent on renewable energy around the world. A study by University of California at Berkeley says, furthermore, that California's initiatives will prompt the development of efficient machinery, energy saving appliances and the development of new renewable energy sources. That will produce 89,000 new jobs in California and add $60 billion a year to the state's economy.

Meanwhile, other laws give the state's energy commission the authority to regulate all long-term procurement contracts. Now, one-fifth of all California's power is imported. And some of that comes from coal-fired plants in neighboring states that are not as clean as modern gas facilities. So, if suppliers want to sell into the California market, they would have to adopt the latest and greatest coal technologies.

To be sure, the rules could turn out to be devoid of real change. Critics say that they will end up costing consumers more and will subsequently drive out large employers that find the laws too expensive to comply.

Take the Los Angeles Department of Water and Power, which depends on coal-heavy Nevada and Utah to provide half of its electricity needs. The utility, which serves about 4 million households, says that its overall costs could rise by $700 million a year under the law that may institute a cap-and-trade system. That, in turn, would force the utility to buy credits from those businesses that can meet greenhouse gas limitations -- money that the utility says would otherwise be spent on expanding environmentally friendly programs.

But the transformation is happening. Addressing climate change is atop many political agendas. Collaboration is therefore the key. Businesses must not be bullied, but they must be persuaded to re-think the way they do business and to modernize their processes in an effort to become cleaner and more efficient.

"The longer that business as usual goes on, the more difficult challenge it becomes," says Chuck Shulock, manager of the greenhouse gas reduction program for California Air Resources Board, which is charged with making sure the state reaches its carbon-cutting goals. "It's a question of sort of turning a very large ship," he adds, in the San Jose Mercury News.

California's approach to crafting energy and environmental laws is bold. And while its success is far from certain, it is setting a general path that other states and regions are beginning to follow. The new energy economy will subsequently become more focused and provide the mechanisms by which to achieve some of these goals.

Energy Risk - California's Laws [Energy Biz Insider via riskcenter.com]