California's Global Warming Solutions Act is driving the emergence of the new green market for sustainability as much as any federal legislation. The following excerpts from a panel at the GreenXchange Marketplace Conference, entitled "AB 32: California's Climate Change Regulations: A Driver of Market Change," explain the potential of the legislation. Led by Fran Pavley, former California State Assemblymember and author of AB 32, the panel included Nancy Sutley, deputy mayor for Energy and Environment, city of Los Angeles; Pedro Pizzaro, senior vice president of power procurement, Southern California Edison; and Lorraine White, advisor, California Energy Commission.
Fran Pavley: In California, not only is the debate about global warming over, but we also reached a tipping point about a year ago last summer as to whether it’s a choice between a clean, healthy environment and a thriving economy. Here in California, we are committed to having both. The governor and the Legislature passed AB 32, the Global Warming Solutions Act, which puts a cap on emissions—rolls them back to 1990 levels, about a 30 percent reduction, by 2020...
Mandatory reporting will come on line January 1 of next year. The real work ahead is the scoping process of deciding which entities in the industrial sector will have to reduce how many emissions.
It’s relatively easy to pass legislation, but the real work is going on behind the scenes. Many of you are involved in a stakeholder process. California will be, perhaps, held up as the model for other states and other countries to attack the biggest environmental and economic challenge of the 21st century. But it is not just a challenge; it is also an opportunity. Just by the large attendance that came to this conference the last two days, we are seeing that there are tremendous opportunities. Just by setting a cap on emissions, we send a clear message to the marketplace that California is open for business—for alternative fuels, clean technology, and renewable energy.
It is not just California that is getting on board with this issue. I’ve spent this last year working with other cities and states on climate change. 800 mayors around the United States have signed on to the U.S. Mayors Climate Protection Agreement, voluntarily doing things in their cities, whether it is energy efficiency or smart growth strategies—that’s a commitment and it has spread out all over the country. That’s not just a “blue state” thing anymore. Also, according to Dianne Wittenberg from the California Climate Registry, 40 cities are developing protocols for voluntary reporting so that in the event that trading becomes an opportunity, states will be operating on the same baseline level.
14 states have now adopted California’s clean car regulations that I authored—a 30 percent reduction of emissions from the tailpipe of automobiles by 2016, and we are almost at the tipping point regarding that—that’s 45 percent of all the vehicles sold in the United States committed to being cleaner, more energy efficient cars. We just have a couple hurdles yet to overcome...
...We have a cap on emissions in California. If the transportation sector does not do their fair share to reduce greenhouse gas emissions, and the majority of our emissions come from the transportation sector, under AB 32 we are going to have to find other sectors to help pick up that important responsibility.
There are wonderful opportunities ahead of us. I’m seeing excitement, almost a revolution, if you will, from ways we’ve conducted business in the past as we move forward toward a cleaner, healthier economy and environment...
Nancy SutleyNancy Sutley: In the city of Los Angeles we’ve put out a comprehensive plan—our Green L.A. plan—which is a roadmap to how we’ll meet our greenhouse gas emission reduction goals citywide. The goal is to reduce our greenhouse gas emission levels by 35 percent below 1990 levels by 2030. We think that’s a pretty aggressive goal, but keep in mind that the city of Los Angeles, the community of Los Angeles, emits about 0.2 percent of worldwide carbon emissions. That doesn’t sound very big until we consider that it’s roughly equivalent to the entire country of Sweden.
Transportation is a very important part of our carbon footprint, and it accounts for about 50 percent of the carbon emissions in our community—the largest single source. The city as a municipal corporation generates about 17 million metric tons of CO2 annually; most of that comes from the generation of electricity and the use of electricity. We are fortunate to own a utility—you may have heard of the Los Angeles Department of Water and Power. That’s been a great thing for the city—for its economic health and for providing a service for our customers—but it also means that the city has a fairly large carbon footprint. Our city operations, including DWP, account for about a third of the overall CO2 emissions in the community within the bounds of the city of Los Angeles, which is about five times the percentage greater than New York City’s municipal output. So DWP is not only an important source of greenhouse gas emissions in California, it certainly is for the city.
In trying to meet the goals of our Green Los Angeles plan, we challenged DWP to meet its goal of 20 percent renewable resources by 2010, which is the same goal the rest of the utilities in California have, but also to go beyond that in 2020 to meet a target of 35 percent renewables. Looking beyond just the generation of electricity, we also have to look at the demand side. We’ve put a lot of effort and a lot of money into building up that DWP demand side management program.
We’re making a lot of progress on energy efficiency, on renewables. We’ve tripled our renewable portfolio in the last two years—we’re up to 8 percent now. The department is building renewable projects like the Pine Tree Wind Farm and we’re looking at geothermal in the Imperial Valley, as well as contracting and working with developers to develop new renewable energy projects.
What goes along with that, of course, is to build transmission lines. This is not always a very popular thing for the rest of the world, but it’s something that we have to do. And then finally to re-power the existing natural gas power plants in the L.A. basin.
Lastly, I want to plug AB 32. There’s been a lot of discussion about what the program is going to look like. As Fran said, the Air Resources Board has a couple more years left before they develop a full scoping plan and a layout to show to the world. The discussion has really been about a market-based program versus regulation. I think that what we have to keep in mind about market-based programs is they have to be emission reduction programs first, with a market component to try to reduce the cost of compliance. There’s been a lot of hype about market-based programs as providing all these other benefits in terms of potential revenue for the government, or as new, exciting markets for people who are in markets, whether they’re in capital markets or other things, but primarily, they should be emission control programs. The point of having a market is to reduce compliance, but also to set a price for carbon. I think from the perspective of the city and from DWP, the better thing for us is really a direct regulation approach. Tell us the goal we have to meet, and we’ll get there. We want to keep that investment inside the city of Los Angeles for the benefit of the ratepayers of DWP.
Lorraine White: ...My agency is tasked with defining goals that conserve resources, provide for a reliable, secure, and diverse system that provides the energy that the state needs to operate, to grow, to function and that also protects, supports, and enhances the environment. It enhances and supports the state’s economy and protects public health and safety. These have always been the requirements on our agency. With the passage of AB 32, we add to that reduction in greenhouse gases—it does not diminish the other objectives; it enhances them.
So, how do you actually develop policy in a state the size of California, which is essentially a nation-state unto itself? We have diverse energy demands. We have a very large, robust, highly interconnected electricity system that relies on imports as well as in-state generation. We have a tremendous demand for natural gas, predominantly for the generation of electricity. We also consume a tremendous amount of petroleum products for our transportation sector and other industrial uses, most of which is imported.
Where is the greenhouse gas emissions footprint coming from? Most of it is coming from transportation. But there is also a significant footprint coming from our electricity sector, the natural gas that we use to generate that electricity, and other manufacturing.
As my agency, tasked with developing these policies, looked to the future and our state’s demand, we realized that we had to develop a strategy that will allow us to meet the needs of the state while meeting all of the objectives that I talked about earlier. For years, my agency, and the state as a whole, had different types of programs that we’ve implemented. We have learned from them, and we know that they’re successful.
We also think that you can’t just look to new development to bear the burden of those programs and the emission reductions. We have to look to the existing system. So we’re looking at requiring audits, at the time of sale, predominantly in the residential sector, but perhaps even, as we go forward, with commercial and industrial.
Essentially, our agency defines standards, and we know that we have to take the technology that’s coming out of research and development and implement those strategies through the new standards. Renewable development, trying to displace some of those petroleum and natural gas resources with renewable resources—you’ve heard a lot about this from earlier speakers today. System integration, tariffs, reflecting costs and benefits—those are all very important.
In transportation, our efficiency standards are lagging behind the rest of the world. If we want to be able to be the nation-state that leads and has the rest of America following us, we’ve got to pressure the federal government and our own indigenous companies to push the envelope. Allowing Congress to approve a modest improvement in efficiency standards of 35 miles per gallon by 2020 is far too little, too late. We need to push a lot harder.
We know that we need to reduce demand in the transportation sector. We need to use non-petroleum liquid fuels and other fuels to move our goods and our people. We need to be able to set milestones that we will measure and hold people accountable to increase alternative fuel use in the state. We need to develop some of those resources in-state to keep our economy strong and make sure that we meet the goals that we have for economic development and providing jobs in-state to support our population.
But we can’t do it by always being in our cars. Vehicle Miles Traveled—the hours and time we spend in our cars and the amount of fuel that represents—is unsustainable. We’ve got to figure out a way to get people closer to their services and work, and make it so we don’t have to spend as much time in cars.
We have several recommendations that look to land use, not just from the standpoint of transportation, but the way we build our communities and the quality of life that we’re trying to promulgate for those developments. We’re looking at developing statewide plans that look to regional entities to embody energy efficiency and greenhouse gas emissions reductions at the local level. Nancy was talking about the strategy that L.A. is implementing—we want that done statewide. We think every local community and region should have a plan that seeks to reduce their greenhouse gas emission footprints and implement it, be held to it, be accountable for it.
Essentially, powering the nation for the future and achieving those goals while meeting all those other objectives requires us to incrementally, between today and 2020, and aggressively implement these different strategies. We think we need to do them now. We can’t wait for the feds to tell us it’s okay. We’re just going to have to do it. We need business. We need investors. We need the private sector to partner with us to make that a reality. Government will not be able to do it alone.
Pedro Pizarro: Focusing on the power mix at Southern California Edison (SCE) in California as a whole and for the U.S. as a whole, we see that, if you look at our mix of resources, both in California and SCE within California, around 40 percent of our mix comes from low greenhouse gas emitting resources. On the renewable side, we’re actually at 17 percent renewables. We buy more renewable power than any other utility in the country and than any other state in the country other than California. We have something like one-sixth of all the renewable electrons in the country under contract.
So you see that California has come a long way, but we’ll need to do more in order to be able to attack the AB 32 targets as those get allocated out among industries. Now, where have we come from as a company? The challenge is to return to 1990 emissions levels by 2020. In 2006, we were already about 25 percent lower in our emissions compared to 1990.
How did we get there? It’s not one single silver bullet. There are a number of initiatives. First and foremost is our energy efficiency program, which has been a significant contributor to our greenhouse gas reductions. We have added more renewables. We just shut down a coal plant. Importantly, we have improved generation efficiency. Efficiency isn’t just about the energy side of the end use or premise; it’s also about the generating fleet. We are making better use of the gas molecules that are getting burned and getting more power out of the gas and the resulting greenhouse gas emissions.
With renewables, even though we’re proud of where we are, we still have a long way to go to reach the 20 percent target by 2010. In fact, we’ve been very honest with our regulators that we will not make it to 20 percent by 2010 on a meter-spinning basis, on a delivery basis. We’ll have contracts in place. We have significant contracting activity, but transmission is really critical, so we are putting a lot of emphasis on how we complete that seven-to-ten-year development cycle for new transmission to develop projects or access new renewables. Right now, we’re committed to spending nearly $2 billion on one transmission line alone to access 4,500 megawatts of wind. I’ve already signed a contract for a 1,500-megawatt wind development, which is the largest wind contract that we know of anywhere.
Renewables integration is a big issue. For example, the wind tends not to blow when it’s hot in California. It doesn’t mean that wind is a bad resource—we still like the clean energy wind produces, but we also need to be thoughtful about how that integrates into the system. Therefore, you really need to be careful as you think beyond 20 percent, just to make sure we understand all the costs and reliability impacts before we assess whether we go even further beyond 20 percent. Quite frankly, if you talk to independent system operators, I don’t think they’re convinced yet that you can make it to 50 percent and keep the lights on with current technology. In the future, as you get different storage technologies, that might become more feasible, but we need to deal with that today.
The bottom line is that, as we think about the renewables not just for their own sake but as a tool to help mitigate greenhouse gas emissions, it’s important to look at the incremental greenhouse gas impact of renewables, including the mitigation that’s required to have, for example, gas-fired available on standby to back up the wind. Those produce greenhouse gases. You need to take a look at the whole picture.
Looking beyond renewables, if there is one message from my discussion, it’s that there’s no one silver bullet. What are we doing as a company to solve that rainbow challenge? I already talked about the renewables side, and we’re proud of that, but we’re also proud of a number of other areas. On the energy efficiency side, we have saved more electrons through energy efficiency than any other electric utility in the country: 4 billion kilowatt hours in the last five years. That’s reduced greenhouse gas emissions by about 2 million tons, and our plans are very aggressive over the next ten years to save even more. We have the largest demand-response program in California, and that includes a number of different tools, such as air conditioning cycle units that can send a remote signal by radio to a thermostat and reduce the air conditioning use at peak [hours]. We are deploying a smart meter system to all of our 5 million meters. These will be meters with two-way communications capabilities; basically, we’re throwing out the 100-year-old technology that we still use, and we’re putting in these new, state-of-the-art devices that will provide information to customers on their usage and how that relates to peak pricing. It will also give us information that will help us to improve reliability, restore service outages much more quickly, and the like.
And finally, coal. We have to deal with coal. The reality is that half of the energy production in the United States comes from coal. We can’t wave a wand and make it go away, especially if you look to Asia and India, which are going to rely on coal as the lowest-cost economic solution. It is a challenge and an opportunity for us in the United States to work hard on developing new technologies that can compete on a cost basis and be exported and shared with partners in different countries. To that end, we have a proposal in front of our Public Utilities Commission to do the front-end work on an integrated combined-cycle plant that would convert coal into hydrogen and capture and sequester most of the carbon. Again, there’s no one silver bullet. We need a lot of bullets in the gun.
From the electric grid side, we want to be able to play a leading role here in combining advanced generation, whether it’s renewables or cleaner, more efficient gas-fired technologies and clean coal. We want to tie that together through our smart grid and be able to look at the usage through smart meters and provide information to customers so they can make decisions that will help reduce energy use. We want to bring transportation into that picture and deal with the fact that we have excess capacity on the system in California; we have one of the lowest load factors in the country. What that means is that our peak use is almost twice our average use. That means we have a lot of plants on standby, sitting there idly at night, waiting for the summer peaks to come. There is a lot of extra capacity there to power electric vehicles at night. We need a smart grid to tie all that together and make the technology work—bring all those technology advancements to provide some real and economic responses to greenhouse gases, combine the generation side to the demand side, and all along, make sure that we’re protecting our customers. It’s going to require a real cost here for greenhouse gas mitigation.
I know there’s a lot of potential there; new technologies may lead to some economic gains. But we need to go into this with the mindset that there will be a cost, an important and necessary cost. Let’s set up mechanisms that will help to mitigate that overall cost to customers, let the best technological solutions win, and importantly, especially in an environment like California where we have competition, let’s make sure that all customers within the electric industry, as well as all industry sectors, are paying their fair share of that cost responsibility. •••