CARB Plan Leans Heavily on Power Sector

By Published On: June 27, 2008

California’s power industry is expected to play a major role under a greenhouse gas reduction plan released by the California Air Resources Board June 26. Industry–from independent power generators to utilities–would be responsible for a good half of the reductions outlined under the draft plan. It also is expected to play a role in a wide range of other contemplated emissions reduction measures, from helping to electrify ships while docked in ports to supplying power to electrify cars. While the industry emits 23 percent of the greenhouse gases in the state, the plan looks for it to play some role–either direct or indirect–in achieving more than half of the greenhouse gas reductions. “Electricity will play a pivotal role,” said Bud Beebe, Sacramento Municipal Utility District regulatory affairs manager in response to the draft plan. “It offers an energy source that is compatible” with a low carbon future. Air Board chair Many Nichols pointed to the business opportunities inherent in the plan, arguing it has the potential to stimulate economic growth. The draft plan is designed to carry out the state’s climate change law, AB 32, which requires a reduction in greenhouse gas emissions to the state’s 1990 level by 2020 and further cuts of up to 80 percent by 2050. Under the plan, the state would reduce its projected 2020 greenhouse gas emissions 30 percent, or by 169 million metric tons of carbon dioxide equivalent. Regulations affecting the power industry would require reductions totaling 84.9 million tons of CO2. On top of that, the industry would have to cut emissions of sulfur hexafluoride, a gas used in devices that are embedded in the power grid. Transportation measures, including tighter tailpipe standards for cars, a low carbon fuel requirement, and a handful of other actions, would aim to cut annual emissions by 60.2 million tons, an amount equal to 36 percent of the total cuts. Transportation is the largest source of greenhouse gases in the state, accounting for about 38 percent of emissions. The rest of the cuts would be scattered over landfills, water utilities, forestry companies, state government, dairies, and manufacturing industries. For the power industry, the plan outlines a series of direct regulations–with specific emissions reductions requirements–each of which would have to be adopted through separate rulemakings due to be completed by the end of 2010. Under the plan, the Air Board said it would increase the state’s 20 percent renewables portfolio standard for utilities from 20 to 33 percent in 2020. That would cut annual emissions by 21.2 million metric tons. Enhanced energy efficiency programs would be required, as well as more stringent energy efficiency standards for appliances and new buildings, to cut yearly emissions by another 26.4 million metric tons. An enhanced solar rooftop program would aim to cut emissions each year by 2.1 tons. Additional reductions would come under a market-based program. “We’re going to ask the electricity sector to bring down their emissions by another 35 million metric tons a year,” explained Nichols, under a cap-and-trade program. The power sector would be placed under cap-and-trade rules implemented in concert with a regional emissions trading market being developed by states through the Western Climate Initiative process. The Air Board said it envisions that the market eventually would cover all major sectors of the economy, from transportation to large industries. Meanwhile, the plan provides little detail of how the cap-and-trade program would work, beyond noting that offsets would likely be allowed if they stem from emissions reductions projects executed in California. It added that emissions rights would eventually be auctioned. Nichols said that initially only a small portion of the emissions rights would be auctioned. Money from an emissions rights auction would be plowed back into programs that cut greenhouse gas emissions and help the state deal with global warming. Carbon fees are discussed in the plan, including a small levy to fund administration of the program. The plan also discusses a potentially larger fee on carbon that would be aimed at reducing emissions by penalizing inefficient energy use. For every $10 per ton charged on emissions, it would increase the price of electricity by 1 cent/kWh and the price of gasoline by 10 cents/gallon, the draft plan said. Natural gas prices would rise by 5 cents/therm. Each $10/ton levy would generate $4 billion of new annual revenue to the state. However, Nichols characterized such a carbon emissions fee as an option for further study and even then only as a potential “backstop” measure should a cap-and-trade market and other measures fall short in achieving their emissions reduction goals. Public utilities that opposed a cap-and-trade program recommended jointly by the California Public Utilities Commission and California Energy Commission seemed mollified by the Air Board draft plan. The earlier joint recommendation envisioned a California only cap-and-trade program under which all emissions rights would be auctioned. The commitment to link any California carbon market to a regional Western states market is wise, said Susie Berlin, Northern California Power Agency attorney. However, she said public utilities still have concerns about the potential for manipulation in a carbon market and how emissions auction money would be spent. Auction revenue should be left in the hands of local public utilities to help them further their renewable power and energy efficiency programs, said Bruce McLaughlin, California Municipal Utilities Agency attorney. While an economic analysis showing how much the plan’s individual measures will cost is yet to be completed, a macroeconomic cost-benefit analysis shows that reducing greenhouse gas emissions would provide $2 billion a year in public health benefits by 2020 and result in a statewide economy that is 1 percent larger than under business as usual. Environmentalists generally lauded the plan, though some urged that the Air Board toughen it. Many urged that all emissions rights under a cap-and-trade program be auctioned. They sought other changes too. Coalition for Clean Air executive fellow Dr. Shankar Prasad urged the Air Board to place restrictions on any facilities covered by cap-and-trade if they operate in highly polluted areas. He also urged more stringent action to reduce vehicle use. “Technology alone will not be enough to meet our greenhouse gas reduction goals,” said Prasad. The Air Board plans to release the economic analysis in an addendum later this summer and hold a series of public meetings around the state to take comment on the plan. It intends to release a final plan in October and have its board adopt it in November or December. Under AB 32, it must adopt a final plan by the end of the year.

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