Steven F. Greenwald
Jeffrey P. Gray
On Sept. 12, the California Public Utilities Commission (CPUC) and California Energy Commission (CEC) took the next step in the implementation of Assembly Bill (AB) 32, California’s ambitious greenhouse gas (GHG) emissions – reduction initiative, with the release of a 300-page proposed decision on GHG regulatory strategies. AB 32 requires the California Air Resources Board (ARB) — the agency responsible for adopting rules and regulations to meet emissions-reduction goals — to "consult" with the CPUC and CEC on issues "that pertain to energy related matters."
The proposed decision would recommend to ARB a combination of both programmatic and market-based mechanisms to reduce GHG emissions in the electricity sector. The recommendations include implementation of "aggressive" energy-efficiency programs, an increase in renewable energy procurement requirements from 20% to 33%, and creation of a broad, multisector cap-and-trade program. Though these measures come as no surprise (see POWER, August 2008, p. 30), the proposed decision highlights the disproportionate burden the electricity sector is expected to bear over the long term as California gets into the nuts and bolts of reducing GHG emissions.
Power generation: an easy target
The reality that the power sector would be required to reduce GHG emissions was recognized by most in the industry well before enactment of AB 32. Nevertheless, few would have predicted the extent to which California regulators would disproportionately lean on the power generation sector to achieve the state’s emissions-reduction goals.
Power generation currently produces about 20% of California’s GHG emissions, yet regulators are asking the sector to account for nearly 40% of the state’s total GHG reductions, not counting reductions to be realized under the cap-and-trade program. In contrast, the transportation sector, which accounts for approximately 41% of the state’s GHG emissions, is being asked to contribute only 45% of the total statewide reductions.
This disparate treatment is unsurprising. Large stationary sources of GHG emissions, such as power plants, are much easier to identify and regulate than automobiles. Traditional ratemaking principles and accepted social policies also allow regulators to "socialize" compliance costs associated with reducing emissions in the electricity sector across a broad base of utility customers. From a political perspective, opposition to increasing electricity prices has rarely approached the level of consumer outrage over run-ups in gasoline price or increases in license fees.
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