California Climate Law Is Magnet for Clean Energy Projects

Dec 27, 2010 -- STATE DEPARTMENT RELEASE/ContentWorks

 

With national climate legislation stalled in the U.S. Congress, environmental advocates are turning their attention to the country's more action-oriented states.

Two states are now imposing their own caps on greenhouse gas emissions, while a number of others have set renewable energy standards for power producers. This is raising hopes that the United States may soon be able to rein in greenhouse gases in a significant way.

All eyes are on California, the world's eighth-largest economy, where the country's most comprehensive climate legislation will go into effect in January.

The state's Global Warming Solutions Act includes a series of measures aimed at reducing emissions to 1990 levels by 2020. One of them is a mandatory cap-and-trade system approved December 16 that sets the stage for the United States' first economy-wide carbon market to open in January 2012.

California voters had the opportunity to halt the implementation of the new law in the November elections, but chose to uphold it.

"This is what makes us the leader," California Governor Arnold Schwarzenegger said the day state environmental regulators adopted the cap-and-trade system, a policy he had initiated and fought for. "This is not just about global climate change ... but it's also about health. It is about the 19,000 people [who] die every year because of pollution. We can do better than that."

California's action also blows new life into the Western Climate Initiative (WCI), a coalition of western U.S. states and Canadian provinces seeking to set up a regional carbon market. WCI's goal is to reduce emissions 15 percent below 2005 levels by 2020.

California's participation was seen by program participants and observers as pivotal to the survival of the WCI, which will become the second-largest carbon market in the world after the European Union's Emissions Trading System.

"These reductions will be significant, not only in terms of the United States, but for the world," said Andrew Light, a senior fellow and climate expert at the Center for American Progress, a Washington think tank.

On December 6, New Mexico, another WCI member, approved a carbon cap for power companies and other industries that emit greenhouse gases. The Southwestern state plans to reduce emissions by 3 percent annually starting in 2013, with the goal of cutting emissions 25 percent below 1990 levels.

Steeper reductions could be imposed after a review three years into the process, said John Fogarty, president of New Energy Economy, a New Mexico nonprofit organization that helped push through the new rules.

"We're a major oil-, gas- and coal-producing state. Having a state that is so heavily invested in fossil fuels showing that it's important to also develop clean energy sources, I think, can be a model for the country," he said.

WORLD'S LARGEST SOLAR PROJECT

Investors are taking notice of the emerging carbon markets and clean energy policies out West.

NRG Energy, a New Jersey--based power company, recently announced it will buy a planned 290-megawatt photovoltaic solar energy farm in Arizona that will sell electricity to a California electric utility that must meet stringent renewable energy goals under California's new climate law. All electricity sold in California is regulated by the new law, even if it's produced elsewhere.

The Agua Caliente project is expected to be the world's largest solar project of its kind when it comes online in 2014.

Over the last few months, NRG has committed nearly $1.6 billion toward Southwestern solar power projects that come in addition to the company's large investments in wind, biomass, nuclear and carbon-capture initiatives in recent years. It's no coincidence that several of the large solar projects were initiated with California in mind.

"California's renewable portfolio standard is a very powerful magnet," said Steve Corneli, senior vice president of market and climate policy for NRG. It "allows a market mechanism to evolve that will help pay for the more expensive, cleaner energy projects. Equally important is that it's created the opportunity to get longer-term contracts [with California power companies]. It takes the risk out of these projects."

AN UNCERTAIN BUSINESS ENVIRONMENT

A cap-and-trade scheme gives companies financial incentives to reduce emissions while requiring companies to pay for emissions above a defined limit. Credits given for reductions can be traded and generate profits on the carbon market.

A common argument in favor of legally binding renewable energy standards and emissions caps has been that industry needs clear policy signals to invest in clean energy technologies. At the same time, large power producers such as NRG Energy must invest today in generating stations that will serve their customers -- and shareholders -- over the next several decades.

So NRG is taking advantage of federal loan guarantees and cash grants provided for clean energy projects because it bets that this is where the future lies.

"We are clearly in a period of real uncertainty of what regulation will look like, when it will happen, and where it will come from," Corneli said. "But we think that it's only a matter of time. As we look ahead, whether it's this year or in 10 years, we see various kinds of carbon constraints as very likely. That's why we want to invest in low- or zero-carbon projects."

(This is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://www.america.gov)

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