Environmental Law

California Energy Officials Move Toward Bigger Renewable Goal, Carbon Auction

By Dennis Pfaff and Kevin Livingston, Editors

California's utility and energy regulatory bodies are moving toward urging that the state adopt an aggressive renewable energy goal, and that a cap-and-trade system to reduce greenhouse gases ultimately auction all of the credits needed to cover the emissions.

Those were among the key recommendations jointly put forward by the California Energy Commission and the California Public Utilities Commission late last week on how the electricity sector can meet the mandates of the state's AB 32 anti-global warming legislation. The law requires a reduction in California's emissions of heat-trapping gases to 1990 levels by 2020, translating into about a 30 percent reduction from what would occur otherwise.

The proposal built on a set of interim recommendations that were adopted by the agencies in March. It noted that electricity production accounts for about 25 percent of the state's greenhouse gas emissions. 

If adopted as expected on Oct. 16, the recommendations go to the California Air Resources Board, which is leading the effort to bring the state into compliance with the 2006 law. That agency has already adopted a blueprint for meeting the AB 32 goals that include a market-based system, and also urges that utilities produce a third of their electricity from renewable sources by 2020. However, its so-called scoping plan was vague on the issue of auctioning versus giving away carbon credits, the key commodity in a market system.

The new recommendation from proposes that 20 percent of the credits be auctioned in 2012, going to 100 percent within five years.

That contrasts with an East Coast trading system concentrating on reducing emissions from power plants that is scheduled to begin selling credits next week. The Regional Greenhouse Gas Initiative is expected to auction virtually all of the credits, or allowances as they are also known, as Climate Law Update reported recently.

In urging adoption of the one-third renewable energy goal, the joint recommendation from the energy and utilities bodies called the objective achievable if the state does such things as commit to "significant investments in transmission infrastructure," according to an executive summary.

But ramping up to 33 percent renewable energy would require nearly a three-fold increase in the amount of wind, solar and similar alternative sources over what is now in the mix. It's also a substantial increase from the state's current renewables portfolio standard, which establishes a 20 percent goal by 2010. In fact, the Wall Street Journal reported that if implemented the one-third mandate would  constitute the most ambitious renewable energy plan in the nation. 

Even meeting the state's current, lower, standard has been difficult, though. A recent assessment put out by the utilities commission showed the state's power providers were struggling to meet the goal; it also pointed to uncertainties over the future of federal tax incentives in the face of continued squabbling in Congress over the issue.

Regarding the potentially hot-button issue of auctioning allowances, the energy commission-utility commission recommendation said that while that's the "preferred method" to distribute the credits, starting off with an auction of them all would be "a monumental and costly challenge."   

Other key recommendations included distributing the free allowances to deliverers based on their energy output, and weighted according to fuel source, such as coal or natural gas. In its interim decision, the commissions had recommended that those "deliverers" -- entities that deliver power to the grid, such as in-state power plant operators and importers of power from out of state -- bear the responsibility for complying with AB 32's requirements.

Virtually all of the allowances to be auctioned would be granted to retail electricity providers, on behalf of their customers. The retailers would then be required to sell the credits in an independent, centralized auction. California is a member of the Western Climate Initiative, a consortium of states and Canadian provinces that is readying a regional auction system.

In addition, all auction revenues would be used for purposes that would be related to AB 32. The recommendation said that all the money from allowances allocated to the electricity sector and received by retail providers should go toward such purposes as supporting investment in renewable energy, energy efficiency and assisting customers with their bills.

 --Dennis Pfaff of Thelen LLP   

Full post as published by Climate Law Update on September 15, 2008 (boomark / email).