California's Assignment
November 19, 2007
Ken Silverstein
EnergyBiz Insider
Editor-in-Chief
Read Ken's Blog
It's been more than a year. But, California's passage of the nation's first
global warming law is still being defined. And, it will continue to evolve
in the coming years as the state grapples with how to cut its greenhouse gas
emissions.
The law there, which took effect on Jan. 1, 2007, sets out to reduce
California's heat-trapping pollutants to 1990 levels by 2020. The state is
off to a notable start by enacting rules to increase its renewable energy
supply to 33 percent by 2020 as well as by creating new energy efficiency
performance standards and cleaning up motor vehicle emissions.
But those efforts will not be enough. So, the "California Air Resources
Board" is now authorized to devise methods to cut those greenhouse gases
even more and to suggest ways to pay for that. It will be a five-year,
public process. No group wants to be singled out, leading the law to read
that all policies are to be feasible, fair and cost effective.
By Jan. 1, 2008, the air board must determine what the 1990 emissions levels
were and then choose a mechanism by which companies must report current and
future releases. Up first: whether to enact a cap-and-trade system whereby
companies that exceed the goals can earn credits. They could either bank
them or sell them to those companies that are unable. The next choice would
be to either provide companies free allowances or to auction them, which the
Market Advisory Committee recommended to the air board as a fairer way to
distribute those credits.
The other possibility is a tax on all carbon emissions. Advocates say that
such a scheme is easier to administer than a cap-and-trade system, which may
unfairly give away credits to the heaviest polluters. Even conservative
economists say that the implementation of public policy that increases taxes
on such harmful things as pollution is a positive because it dissuades use.
"Why should an electric utility, for example, be given a valuable resource
simply because it has for years polluted the environment?" asks former Bush
adviser Greg Mankiw. "A new firm entering the market should not have to pay
for something that an incumbent gets for free."
But the Implementation Group counters that argument, saying that any added
cost to business is harmful and will be passed through to consumers. "A
winning program for all Californians will encourage the state's firms to
replace equipment with new innovative but often expensive technologies, with
efficiency incentives that come with a cap-and-trade system," says the
group's co-chair Dorothy Rothrock, who emphasizes that the association
supports the state's global warming law.
New Day
Clearly, the goal in instituting a cap-and-trade program or a carbon tax is
to get companies to invest in clean technologies. Along those lines,
California has enacted other companion laws. Among them is one that says
that the state's public utility commission is required to establish a
performance standard for utilities -- one that is no less stringent than the
greenhouse gases associated with a combined cycle natural gas plant that is
considered among the cleanest available.
Toward that end, the commission now has 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 Nevada that are
not as clean as modern gas facilities. And with the run-up in natural gas
prices, coal is more popular than ever and nationally there are about 160 or
so plants on the drawing board. So, if suppliers want to sell into the
California market, they would have to adopt the latest and greatest coal
technologies.
Despite the noble objectives, a lot of businesses are skeptical. Some say
that California's new laws are simply unworkable. Others say that it will
drive away enterprises.
But, not all see it that way. If rules need to be reshaped to accommodate a
changing economic structure, then the air board has the power to do so. The
aim is not to pigeon-hole businesses; rather, it is to get them to re-think
the way they do business -- to modernize their processes in an effort to
become cleaner and more efficient.
It's an adjustment that can help the bottom line. In fact, a study by
University of California at Berkeley says that California's initiatives will
prompt the development of efficient machinery, energy saving appliances and
the development of new renewable energy sources. Even if it could achieve
just half of what the law requires, that would create 20,000 new jobs in
California and add $60 billion a year to the state's economy.
"Other countries like India and China, Brazil and Mexico will join us when
they see all the great work that we are doing," says Governor Arnold
Schwarzenegger. "Also our federal government will follow us -- trust me."
It's the type of evolution that proponents say is similar to that of the
original Clean Air Act of 1970. At the time, industry was dubious of the
changes and balked about compliance. But, they acquiesced. And, today, the
pollutants regulated under that act have been dramatically reduced while
American business is still the envy of the world.
It's a new day and now global warming is the major concern. While some
experts say that climate change is mostly a natural phenomenon, most
scientists say it is a function of excessive fossil fuel usage. California
is particularly at risk, with studies by the National Academy of Sciences
saying that rising temperatures in the coming decades will shrink the Sierra
snow pack -- the largest source for the state's drinking water -- by 30
percent to 90 percent. Those same studies also say that climate change will
lead to rising sea levels and more wildfires.
California's policymakers are trying to make responsible decisions given the
evidence before them. They are trying to be fair and reasonable. It's easy
to throw darts. But they must resist the criticism and not lose sight of
their overall objectives
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