CEERT's John White Offers Expert Analysis of State's AB 32 Draft Scoping Plan

VerdeXchange News interviewed you in February 2008. Memorably, you said, "The challenge for all of us in California, and for the state's leadership, is to turn our rhetoric, goals, and promises into reality," with respect to the greening and cleaning of our environment and our utilities. Recently, the Air Resources Board released a draft scoping plan for implementation of AB 32. Will that plan, in fact, turn California's rhetoric, goals, and promises into reality?

The AB 32 Scoping Plan was significant for making clear the administration's commitment, and the governor's commitment, to making the 33 percent renewables by 2020 goal into an enforceable target. There was some initial resistance: utilities were not for it, the PUC staff had put an enormous amount of time into the cap-and-trade issue, and the cap-and-trade auction had become controversial with LADWP.

The fact that ARB put the focus sharply on the 33 percent as a goal (above and beyond the carbon goals of AB 32) signaled that the administration understands that, just like the Pavley motor vehicle standard, the renewable requirement and maximum feasible energy efficiency are core policies above and beyond whatever reductions are achieved through the market mechanisms that may be developed.

It's a significant time, but there's a lot of work to do. California has a fairly complicated renewable procurement program under the existing law, with a lot of regulatory underbrush and uncertainty. We have a lot of contracts that have been signed, but we do not have very much under construction. That's a very significant weakness in the program.

Part of the reason for that lack of construction is, of course, transmission, but it's also the fact that the contracts that have been signed have been for projects that have turned out not to be finance-able.

With the inflation in commodities worldwide and the continued escalation of fossil fuels, we have under-built renewables and a whole bunch of rate increases are coming to the electric sector. There was an article this morning in the L.A. Times about the controversy surrounding the rate increase that Edison has proposed. That's just a harbinger of things to come. With fossil fuel prices and natural gas prices now bumping up to $13 per million BTUs, the ripple effects through the electricity sector are as significant as the effects of the oil prices in the transportation sector. It's not as steep yet, but it suggests that we're going to be in for a rough time, in part because we didn't build enough renewables fast enough.

AB 32 is the 2020 bill, but we are far short of the 20-percent-by-2010 goals. We're at about 12 percent today. We have a lot of work to do, but that work can be done before the end of the legislative session by the legislative leadership and the governor, working together to produce a new framework for achieving the lofty goals that the state set for itself.

How might the framework change between the issuance of the draft report and the beginning of January, when the report will be finalized? What issues will dominate administrative and legislative discussions?

There is work to be done on allocation and figuring out if the state will really have an auction and make people buy credits beginning in 2012. In the electric sector, the renewables debate and the focus on efficiency transcend the cap-and-trade discussion. The most important work between now and then is to make the 33 percent target into a real number by streamlining, simplifying, and eliminating excuses in the off-ramps so the utilities can get to work on meeting this goal.

Also, the state has to execute on transmission decisions in a way that doesn't take eight to ten years to get a new line built to bring some of these renewable resources to the load centers.

SEMPRA has spent nearly $100 million trying to put a transmission line through a state park. That effort has now been abandoned. If they want a line built, they're going to have to do the southern route in cooperation with Imperial. They still have some rough siting through some tribal land and local opposition, but it's a much less controversial site. The effort to put the line through the park cost us valuable time, and it inflamed the desert enviros to the point where rancor is spilling over to other venues.

Similarly, the Green Path North, proposed by the Department of Water and Power, while not as controversial as the San Diego line, has the potential to be very controversial. I am hopeful that the department is engaged in very, very high level diplomacy and self-reflection on how they can bring power up from the geothermal and solar fields of Imperial to L.A. without having a hugely controversial fight. I don't know if that's possible, but I am hopeful that, with the new leadership and the mayor's commitment to the environment, that we can figure something out that might work.

MIR interviewed ARB Chair Mary Nichols last month, and she indicated that most of what is contained in the plan is already underway, including the Pavley reductions in greenhouse gas emissions from the tailpipes of automobiles and the renewable portfolio standards. Is this a legitimate claim, considering that the U.S. EPA is holding up the Pavley reductions and there are doubts that California can reach the 20 percent RPS target?

We're not going to get the Pavley tons in 2009. The standards begin to take effect in 2009, so we're already in the hole. The fact that we may get a new waiver decision from a new administration may be a likelihood, but given the shape the auto industry is in and the difficulties of implementing renewables, I wouldn't count those tons, at least in the early years. We'll be short of what we would have had under Pavley by 2020.

ARB has to have a realistic assessment of what it's going to be able to accomplish in Pavley. It also just relaxed the ZEV standard. We need to look at a much more aggressive ZEV program and electrification of the automotive fleet as a specific goal in addition to Pavley, because we're going to have some tons to make up for from the delay on Pavley.

There's no reason we can't ask the auto industry to have 100 percent hybrid vehicles by 2020. That's where the direction of the inventory has to go. We can give them flexibility on how to meet it. Fuel cells are going to take longer than we had hoped, and yet there's very fast technological progress being made on both batteries and the applications with plug-ins.

On RPS, we're way behind. Contracts have been signed, but contracts don't always lead to megawatts installed. For our goals to be met, we need to have an acceleration and a streamlining of the current law governing the utilities' procurement of renewables. And we're going to have to have sustained focus from the governor and his successor in getting all of the related green energy infrastructure built to support the achievement of those targets.

Cap and trade has been much discussed regarding implementation of AB 32. What is its status in California, and how might it affect DWP and other municipal utilities that presently rely on cheap coal?

First of all, the most significant addition to the scoping plan was the significant linkages that were made to the Western Climate Initiative, which is an effort by western states and Canadian provinces to develop a regional cap-and-trade mechanism. There are a lot of other states that have to be accommodated. We're the 300-ton gorilla in the West, in terms of the amount of power we import from coal, our economic influence, and our position on the western grid. Also, I think that our transportation policies-the Pavley law, the ZEV standard, and the low-carbon fuel standard-all offer these other states the potential for additional reductions in the transportation sector.

The Western Climate Initiative is more likely to bear progress than the national debate. The debate on the climate bill in the Senate suggested how difficult it's going to be to pass the kind of bill that people have been imagining, even with a new Democratic president and four or five seats. The inter-regional politics are going to be difficult.

A lot of people are beginning to question, nationally and in California, what we are doing this for. It has been an article of faith among some of the climate advocates that we had to have a cap-and-trade program as the first platform. But we couldn't get a cap that would decline without creating a trading platform, so that was the deal we had to cut. This was the deal that the Clinton/Gore administration cut with itself and with the enviros when they tried to rationalize Kyoto. The trading platform became a very big part of defending the Kyoto Protocol's steep reductions for the U.S.

But there's another school of thought that's emerging, which is cap and tax. You basically recognize that you want to cap emissions, but reductions require a significant amount of capital investment. The dilemma posed by the LADWP is the dilemma we face nationally: the people that have all the carbon-intensive resources are going to be required to pay a huge amount of money. And then, in addition to spending the money for allocations, there's still a question of who's going to do the investment.

The Western Climate Initiative is a useful venue to see what's involved and get the inventories right, and hopefully California can have substantial influence in that process. On the other hand, the Western Climate Initiative could be a way to end-run the requirements of AB 32, particularly the limitations on offsets and trading.

In terms of a California-only cap and trade, all of the conversation in the scoping plan suggests that these conversations might evolve together. What California decides to do will be influenced a lot by what's going on in the Western Climate Initiative. Also of strategic importance to cap and trade is that the driving force of emission reductions has diminished over the past year or so. People talk about it a lot, but in terms of the percentage of reductions it's going to provide, it has importance in the later years, rather than the early years. In the early years, we have a plethora of regulatory measures that we're already pursuing.

The German feed-in tariff, which guarantees access to the grid and a 20-year fixed price from utilities for any public or private entity that puts in a renewable package, has been adopted by 18 of the 27 European countries. How do you account for there being no substantive consideration of a feed-in tariff for California?

The right term for the feed-in tariffs in the California context is what I would call "standard offers." Standard offers are basically must-pay contracts that utilities were required to give, in the mid-80s to early ‘90s, with which probably 25 percent of California's electricity system got built. Twenty-five percent of California's current electric generating resources, and virtually all of the renewables that we have, were acquired under standard offer contracts, where utilities established a price, based on what they thought the value was in terms of avoided fuel costs, and they offered that price on a 20-year basis to all comers. The feed-in tariff actually could be seen as a California idea that simply got transported and updated in Germany.

The other attribute of the feed-in tariffs in Germany and in Spain is relatively high prices for renewables compared to what they're offered for anywhere in the U.S. The criticism of renewables from the utilities is that they are too expensive. The argument back is, yes, maybe that's true, but at least we're getting them built.

In Europe, they worried about it being a high enough price for the customer so that they would get the resources that they wanted built and the associated economic development and manufacturing that would follow. They succeeded in that.

Also, for our purposes, the Spanish lesson is actually more illustrative than the German one. Germany has relatively generous, high prices for basically anyone who put a solar plant or wind plant online. In Spain, they've used three different technologies with three different tariffs in specific amounts. They're not open-ended. When the tariffs become fully subscribed, they stop at that price and go back and look at if the price needs to be lower. If you sell out of your incentive, the incentive is too high. To introduce more competition, once they've seen what they get with the money that they've invested, they decide how much more they want and what price they will pay. It's not an open-ended, unlimited tariff. In California, since we are behind on large-scale solar development, that might be the first place to look.

The other thing is that the California solar initiative, which is the governor's $3 billion, 3000-megawatt small solar program, is very much like a feed-in tariff in the sense that large customers, above 10 kilowatts, get paid based on how much solar power they produce. There is a performance incentive that's one of the other attributes of the feed-in tariff.

In your VerdeX interview, you spoke of the challenges for L.A.'s municipal utility, saying, "First of all, LADWP is going to have to recognize that the days of complete and total independence and a balkanized grid are over." Have they recognized that fact?

They're trying to do avoid writing a big, hundreds-of-millions-of-dollars check to the state of California with the promise that they might get some of it back. So far, they have agreed to being held accountable for leading a very aggressive renewable target. Their willingness to accept the mandate of the state to achieve the 33-percent-or-higher requirement has been a key element in what we hope will be a comprehensive agreement involving all of the load-serving entities in the state meeting this goal.

The big issue remains is how soon do we begin with a cap-and-allocation system? Is there a way for them to have an alternative compliance mechanism that allows them to be held to a higher level of accountability in terms of specific emission reductions and renewables targets, in exchange for having a different approach than has been initially proposed for the allocation and auctioning of the credits? That's going to require some significant bargaining and discussion between ARB and DWP, and I think they're going to have to be willing to live with a significant amount of ARB oversight and enforcement of their ability to steadily reduce the utilities' carbon footprint.