“The Greening of Energy”
Issues, Perspectives and Opinions

By CMTA Staff

Capitol Update, Aug. 24, 2006 Share this on FacebookTweet thisEmail this to a friend

Recently energy experts, regulators, utilities, businesses and others gathered for two days of discussion regarding energy and climate change policies for California. We hope this brief overview of the perspectives and opinions shared at the conference sheds more light on this complicated and important subject.  Our purpose at the conference and with this document is to help inform the discussion and promote policies that will both make progress on reducing global emissions of greenhouse gases and ensure a healthy and growing California economy.

Brett Guge: Manufacturers pay the "California Energy Premium"
Chairman, CMTA
Vice President, Administration, California Steel Industries, Inc.

  • Energy, along with taxes, wages and the price of land, is a large part of the high cost of doing business in California. California's cost of doing business is 124% of the national average. Electricity is 80% more expensive than other western states - Nevada, Washington, New Mexico, Arizona, Texas, Oregon and Utah. This is called the "California energy premium." It can't be passed along to customers - global competition keeps prices (for products) down.
  • High energy costs have required industry in California to be very energy efficient. Climate change policies for California should recognize that we already have lower greenhouse gas (GHG) emissions than other industrialized states and nations.

Michael Peevey: We should approach this with caution and care.
President, California Public Utilities Commission
  • Investor-owned utilities GHG emissions reduction is a priority - as shown in the energy acquisition loading order - putting energy efficiency and renewable power in front of conventional sources of electricity. We allocated $2 billion in energy conservation funding for FY2006-07. We need a new industrial revolution for 50% reduction in GHG by 2050. We are promoting R&D of new technology to move us there. Utility bids to buy fossil-fired energy must account for the cost of meeting future GHG reduction requirements.
  • A "cap and trade" system to accomplish GHG reduction goals would reduce emissions. But I came back from Europe sobered on a cap and trade market, which should "play a role, but not as large a role as I thought." The learning from other countries should be digested over next several months before we finally decide how to go down this road. We should approach this with caution and care.
  • Regarding the chance of upward pressure on electric and gas rates from GHG reduction efforts: I am not interested in damaging any sector of the economy, just encouraging business leaders to run faster and work harder - We do need circuit breakers. The devil is in the details of how the economic impacts are measured.
  • The CPUC is beefing up demand response and adopting an advanced metering structure. Advanced metering will make possible dynamic tariffs for all customer groups - critical peak and real-time pricing to reflect the true value of delivering energy and creating incentives to conserve. It is the best way of managing our resources and helping the state. In addition, combined heat and power makes tremendous sense and should be expanded.
  • CMTA opposition to AB32 (the bill to cap statewide GHG emissions to 1990 levels by 2020) fails to take into account technological progress and overlooks the certainty of future breakthroughs. A low-carbon economy is the future&ldots;..it's coming; we shouldn't be on the sidelines. The real issue is what it will take to get a bill we can all endorse. The Governor's amendments offer real opportunity.
V. John White: We've made renewables too special
Executive Director, Center for Energy Efficiency and Renewable Technologies
  • We need to make renewables part of the ordinary process of procuring energy. They are not social projects - projects are viable and goals are reachable now.  Natural gas prices are very high which makes many projects are cost-effective. While renewables are supported by broad consensus and everybody is well motivated, there are different incentives. Utilities are not motivated to avoid the price risk of natural gas (it is a pass-through cost). We must find a way around the roadblocks to long-term contracts for renewables.

John Geesman: How Could Something So Good (CHP) Be Treated So Bad?
Commissioner, California Energy Commission (CEC)
  • There are probably 5400 MWs in combined heat and power (CHP) projects available through 2020.  There is a lot of potential - but too many barriers.  We should be promoting self-generation at refineries, which also keeps transportation fuels flowing. CEC has long advocated separate procurement targets for CHP like we have for renewables. 

Pedro Pizarro: We should create GHG impacts, not just incur new costs.
Senior Vice President, Southern California Edison
  • GHG emissions is a global problem. The most cost-effective solutions will be found on a global basis.  California should be a leader, but there is a cost impact. We should do it in areas of technology and stay flexible. Maybe we could get 10 times the GHG reduction in Mexico with same investment we would have to make in California.
  • Does a policy make us feel good or does it actually reduce C02?  If it doesn't actually reduce CO2, this is just a subsidy paid for by Californians. For example, if California is prevented from accessing a Utah coal plant, but others buy the power, there is no impact on emissions.  California is just deprived of access to low-cost energy.
  • There are operational reasons why we need fossil fuels.  Many renewables are only intermittent and not there when we need them; for example, the wind doesn't blow when it's hot. (There are 3100MWs of wind on Cal ISO system, but only 100MW was online during the period 7/19-26.) Energy use growth is 1.5% annually; but peaks are growing by 5% annually. This growing "peakiness" in our demand for power is driving demand for instantaneous power to follow peaks - that means fossil fuels. These "dispatchable" resources can follow the customer demand on the system as it rises at peak periods. Fossil fuels are here to stay; particularly over the next 5-10 yrs.

Barbara Barkovich: A margin of safety is necessary
Principal, Barkovich & Yap
  • We must understand all the cost and reliability impacts of our policies. For example, $1 billion in new transmission investments are needed to achieve the renewable portfolio standard (RPS) of 20% by 2010. Wind power can be shaped with solar to meet demand, but the cost thereby increases. Many bidders for renewable projects (20 to 30%) fail to perform so we need to build in a margin of safety. Finally, nuclear power meets all GHG emission goals and provides needed baseload energy, but storage of spent fuel must be resolved.

Ralph Cavanagh: California will be a pioneer, not a climate martyr
Senior Attorney and Co-Director, Natural Resources Defense Council

  • We're building a new energy portfolio together. The question is, how are we going to take it forward together? CHP and demand response are competing head to head with conventional power generation. SB1368 (a bill to limit long term baseload purchases of resources that do not meet low GHG emission standards) means we are making no more long-term bets on very heavy GHG generators. (Note: SB 1368 allows contracts for peak energy, shoulder hours, and spot market purchases)
  •  Arguing that China and India should move first is not valid.  They emit less GHG than we do; they won't move on this unless we do. What the US and large developing nations need is a clear example of a way forward with positive impact for local economies.
  • California accounts for 2% of global GHG: Two percent is a lot. We've had considerable success leading air quality improvements; let's keep it up.  We've cut existing air pollutants by 60% over the past 30 years while population grew faster than it will in the future. The Public Policy Institute of California survey also sends a clear signal - and it was taken before the heat-wave - that 80% of voters support a GHG policy. 
  • AB32 is not a destroyer - it has economic and environmental benefits. It will attract clean industries for great rewards. It would be a mistake to establish financial tests for each GHG requirement. It should instead encourage business to find things that are effective to meet the goals.
Dan Skopec: We need a menu of options.
Undersecretary, Cal EPA
  • The Governor supports in principle a cap on GHG.  As a framework bill, AB 32 will establish goals, entities but provide no details on how they will be met and the rules that will apply. Those will come from the agencies as a downstream product and there would be legislative review. A lot of work must be done after AB32 passes.

  • The Governor's amendments require that flexible compliance must be specifically authorized and that the California Air Resources Board (CARB) is not the sole enforcer because GHG regulation also impacts water, health, forestry.  A proposed Climate Action Board (CAB) would develop a menu of compliance options, market mechanisms and a "safety valve" that allow them to defer any regulation that adversely impacted the economy.

Kip Lipper: We should continue our efforts over the past 30 years
Senior Environmental Consultant to the State Senate President Pro Tem

  • If AB32 is successful, it will be establishing a broad framework.  This is similar approach to the way we approached water and air quality. This is a continuation of policies based on our history of success over the past 30 years.  Many other bills moving in this session focus on energy efficiency, renewables and GHG emission reductions. The Governor has shown good faith - the FY 2006-07 budget contains first-ever significant funding for clean, alternative fuels and staffing at CARB, CEC and Integrated Waste Management Board. 

John Fielder: We need to give credit for good work already done.
President, Southern California Edison

  • Global climate change is a long-term problem - not a crisis.  We have decades to work on this. We need to get started on a systematic, sustainable solution and spread it to the US and worldwide.
  • We need to get credit for good work already done. GHG emissions in 2005 are about one-third less than 1990. The next increment of reductions will be more costly. If credits start from actions we take starting today, it will be really tough. There is no removal technology for CO2 (a major GHG), like there is for NOX or SO2.
  • The utilities are doing all we can do in energy efficiency as an industry. We are also working as hard as we can to expand renewables, but the market limits acquisition to about 1% annually.  However, consumption is growing at 1.5% a year. So the only way to meet load growth is with natural gas, and this emits GHG.  It is hard to see how we can satisfy customer demands and not increase GHG emissions.
  • We are making assumptions that new energy technologies will work - but they may not. For example, 3000MWs of rooftop solar PV is assumed to be online in California by a certain date, but will customers make those investments? And to achieve our goals a new nuclear industry must be part of the solution, possibly to be sited first in the Southeast US to serve California. It is the only baseload energy technology that is carbon-free.

Thomas Jacob: We need to get the biggest bang for the buck.
Government Affairs Manager, Western Region, DuPont Company

  • It is absolutely essential that California emission cap policies integrate the need to preserve capital.  We should focus on making the most cost-effective investments toward our goals. We can't afford to get focused on achieving last nickel of reduction.  California is already farther down that curve than any other economy. Some regulatory programs can't be pushed farther - look at a marginal cost curve. We should find other ways to achieve reductions, such as allowing offsets and trading. We should accelerate the pace of technology change and encourage diffusion of technology.

Dian Grueneich: We should approach GHG regulation sensibly.
Commissioner, CPUC
  • There is an urgent need to act on global warming, but we have 10 years to get our act together on how to transition to a different way of doing business.  There is a price that we'll have to pay - A new cost, but we'll do it in a smart way. We should approach GHG regulation sensibly so we don't have a time gap between California and other states and that shuts down companies. We are not that far ahead of the federal government and Northeast states are doing what we are doing.

 
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