JUICE: Promises to Keep

By Published On: April 18, 2008

When Governor Arnold Schwarzenegger’s climate action team issued its final report on the state’s greenhouse gas reduction targets, agency leaders promised to put an extra $4 billion into the wallets of Californians by 2020. “Don’t worry. Be happy,” was the clear implication. Solving the global warming problem won’t really cost anybody anything and economic growth will march forward into a low carbon world. The $4 billion income broken down on a daily per capita basis won’t get you a cup of coffee at the donut shop or 12 minutes on a parking meter. It amounts to less than 25 cents. Here’s the real rub: generating that extra $4 billion a year requires an unknown amount of investments in new clean technology with few environmental or economic guarantees. It is hardly surprising that two years later the California climate change debate has turned into an acrimonious discussion about who wins and loses. The arbiter is the state government–primarily the California Air Resources Board–which is grappling with the details of how to carry out the state’s climate change law. While the state figures out how to cut greenhouse gases, we need to be aware that government folks face a host of constituencies, often with divergent interests. That includes investor-owned utilities, publicly owned utilities, automakers, and oil companies who want to hold onto and control their money. Then there is the plethora of financial firms, entrepreneurs, professors, and others clamoring for a piece of the action, be it transaction fees and speculative profits from trading carbon; subsidies for making “low carbon fuels” and green technology; lucrative research grants that build academic credentials; or “outreach” contracts that lead to public prominence. The permutations and cross-cutting alliances are numberless. Everybody promises that they hold the keys to achieving the state’s goals. Meanwhile, somewhere at the back of a legislative town hall meeting or in a city council chamber sit a few average working stiffs–call them Joe and Suzy Consumers–who face falling home values, rising food and energy prices, stagnating incomes, and growing job insecurity. Sure, they’re concerned about the environment and the future of the kids, but their faith has been shaken in big government and large corporations that seem to ding them at every turn. So the key for the state in writing global warming policy boils down to this: How to strike a balance in who pays and who benefits. One thing is inevitable. The state will transfer wealth among players in an effort to achieve its aims. In its defense, without doing so, the status quo will prevail. But can state leaders do it wisely, free of politically-driven fear and favor? It will take time to judge the results. Consider the various programs already aimed at curbing global warming gases directly and indirectly and their hefty price tags. They include billions of dollars to meet energy efficiency targets, renewable portfolio standards, and alternative fuels targets, all funded by fees on utility customers and motorists. Last week, for instance, the California Public Utilities Commission voted to impose $60 million a year in charges on electric and gas utility ratepayers to fund a new university global warming research center. The move follows adoption last year of a sweeping energy efficiency goal by the commission, in part to achieve greenhouse gas reductions. It provides performance bonuses to utilities that make the grade, yet rests to a large extent on the willingness and ability of state residents to finance much of the cost. Late last year, lawmakers raised fees on motorists by $120 million a year. It charged the California Energy Commission with doling out the cash to various corporations, researchers, and local governments to promote low carbon fuels. It will be interesting to see who gets the dough and what’s accomplished. There’s the cost of the greenhouse gas emissions standards for cars, which, if eventually cleared by the federal government, are expected to raise the price of autos by $325 in 2012 and $1,050 in 2016. Sure the standards will save gas in the long-run, but only after motorists pay the higher initial cost. Add in the greenhouse gas reductions from the state’s $3 billion million solar roofs program. Next, is the question of a carbon cap-and-trade program and whether to auction emissions rights under such a market-based scheme. Should such a program go forward, investor-owned utilities want the state to give them credits for the right to emit greenhouse gases and let them sell the credits to power generators who would need them to operate under the program. Utilities would get the money and decide how to use it for cutting greenhouse gas emissions. An option favored by environmentalists is to auction all credits. However, vertically integrated publicly owned utilities–which make their own power–fear purchasing credits in auctions. The Los Angeles Department of Water & Power forecasts it could cost as much as $700 million a year to buy the credits it would need. The Sacramento Municipal Utility District estimates it could face auction costs as high as $150 million. The state Division of Ratepayer Advocates estimates that at $40 a ton for carbon, LADWP ratepayers would pay 26 percent more for power. Pacific Gas & Electric customers would face an 8 percent rate hike. The analysis assumes all emissions rights would be auctioned. Hopefully, with the wisdom of Solomon, the state would redistribute the auction revenue to utilities and other unspecified parties. One idea, for instance, is to use some of the proceeds from an auction to create a technology advancement fund that would dole out cash to universities, entrepreneurs, and the research and development departments at major corporations, such as the oil firms making record profits. They would develop the silver bullets needed to stop global warming dead in its tracks. The promise is such a fund would make California a world technology leader and produce the 83,000 new jobs and all that new income state leaders promise. Such past efforts, though, have had mixed results. The Air Resources Board, for instance, subsidized research and development of the electric vehicle in the 1990s on the promise that building components in the state would replace the aerospace industry after the Cold War ended. The purveyors of the EV dream in 1992 held out the promise of a hundred thousand new jobs in California by the end of the decade. When the year came economic researchers could only find 767 of them. As the Air Board contemplates how to keep the promise that solving global warming will promote bigger incomes and economic growth, it should reflect on what a former governor, who has become active on global warming, once said. That, of course, is California Attorney General Jerry Brown. As governor, he backed technology advancement, including alternative fuels and energy efficiency, but had this to say: “There is a limit to the good things we have in this country. We’re coming up against those limits. It’s really a very salutary exercise to learn to live with them. Everybody looks for politicians to come up with the solutions to the society’s problems. It really is a rather totalitarian urge if you analyze it. Maybe the answer is the Ten Commandments.”

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