California renews climate battle

New rules to curb emissions call for a 30 percent cut by 2020.

By Jim Downing - jdowning@sacbee.com

Published 12:15 am PDT Thursday, June 26, 2008

California's next great experiment starts today.

The state Air Resources Board will outline this morning a plan to slash greenhouse gas emissions 30 percent by 2020 and prepare the state for much deeper cuts in the years beyond.

The bottom line for consumers, according to the agency's analysis: Electricity and fuel prices will rise.

But improvements in efficiency should, on average, result in a net savings on household fuel and energy bills will drop.

"It's a plan that we believe will make our state more efficient in ways that will also help us grow," said Mary Nichols, chairman of the Air Resources Board.

The cuts to climate-warming emissions are required under Assembly Bill 32, a state law passed in 2006 that committed California to the nation's most aggressive global warming strategy. The air board's proposals are being watched closely around the country.

The release of the plan launches what is likely to be many months of haggling among state officials and dozens of environmental groups, utilities and businesses, including automakers, oil companies, appliance manufacturers and builders.

While the air board is required to adopt an outline of its emissions-cutting strategy by the end of the year, it has until the end of 2010 to finalize the policy details.

This week, both industry and environmental representatives expressed general support for the emissions-cutting plan – though rifts are already developing over parts of the plan industry groups say would dramatically drive up the cost of doing business.

"It takes away capital from what you want to do – including investing in ways to reduce greenhouse gas emissions," said Shelly Sullivan, executive director of the AB 32 Implementation Group, a coalition of businesses.

Jim Shetler, assistant general manager for energy supplies for the Sacramento Municipal Utility District, said the plan puts an undue burden on the electricity sector.

While power plants account for only 25 percent of the state's greenhouse gas emissions, the plan counts on energy suppliers to make 35 percent to 40 percent of the pollution reductions, he said.

"We are being asked to contribute more than we are imposing on the environment," Shetland said.

The air board's mission may already have been made easier by changes in the economy. Today's high energy prices are driving many of the sorts of emissions-cutting changes called for under the plan.

Sales of fuel-efficient cars are up, transit ridership is breaking records and businesses are investing in ways to save fuel and electricity.

But officials and energy experts say regulations are needed to keep those trends going should fuel prices drop. The new standards should also help drive investment in green technology, they said.

"The California plan will make the low-carbon energy market grow faster than it would on its own," said Bob Epstein, a venture capitalist who has advised the air board on the financial aspects of climate regulation. "When investors know there is going to be a regulatory limit on something, they can target that and not just wait until there's a price increase."

The core of the air board's plan – amounting to about 80 percent of the required cuts – is a suite of regulations, including some programs already under way.

Some of the biggest sources of emissions cuts:

• Electric utilities would by 2020 provide a third of their power from renewable sources like wind, solar and geothermal – compared with current levels of around 11 percent.

• Automakers would be required to curb emissions of greenhouse gases from new California vehicles more quickly than required under federal mileage standards – a proposal currently blocked by the Bush administration.

• The average energy efficiency of the state's buildings would improve by 25 percent through stricter rules on new construction and new efforts to retrofit existing structures.

To get the last 20 percent of the emissions cuts, the board has called for the creation of a market that would put a price on the right to produce greenhouse gases.

The "cap and trade" system, set to begin in 2012, would allow firms to buy and sell emissions permits. The state would control the volume of permits available, and ratchet down the supply over time. Economists say such a system should help minimize the overall cost of cutting emissions.

California is designing its trading rules to be consistent with those being developed by six other Western states and three Canadian provinces.

In the long run, the system may plug into a nationwide market, which Congress is considering.

Enlarging the trading market will benefit California industry by reducing the price of the greenhouse gas pollution credits and will reduce the chance of companies avoiding pollution control costs by relocating facilities to states without greenhouse gas limits, said Michael Gibbs, assistant secretary for climate change at the California Environmental Protection Agency.

Business and environmental groups disagree on key details of how the cap and trade system ought to work, such as whether the emissions permits should be auctioned off or given away for free.

Industry groups argue auctioning the permits amounts to a heavy tax that will hurt businesses and increase prices for consumers.

Environmental groups say granting the valuable credits amounts to a gift to industry.

"We don't think there's any justification for giving away any emissions credits to polluters," said Bill Magavern, director of Sierra Club California.

The air board, Nichols said, is trying to split the difference – auctioning only a few permits at first, and more in future years.