CA Energy Regulators Okay Recommendations for Greenhouse Gas Cuts
Utility and power plant regulators in California this week agreed on basic 
approaches, including implementing a cap-and-trade system, for reducing the state’s greenhouse gas emissions. But they left some critical decisions until later in the year.
In separate unanimous votes Wednesday and Thursday the California Energy Commission and the California Public Utilities Commission approved a joint set of recommendations for how the state’s electricity and natural gas industries should meet the demands of the groundbreaking 2006 law, AB 32 (see CPUC press release here). The CPUC regulates privately owned utilities in the state, while the energy commission carries out a number of forecasting and planning duties, as well as licensing large generating plants.
The document now goes to the California Air Resources Board, the primary agency charged with implementing the California Global Warming Solutions Act. The law aims to reduce California’s greenhouse gas emissions to 1990 levels by 2020, approximately a 25 percent cut. Electric power generation accounts for more than one-fifth of the state’s greenhouse gases, according to the energy commission.
The recommendation approved this week endorses a mix of methods for achieving the reductions, and it reflected proposals put forward by Michael R. Peevey, president of the state utilities commission, last month. They include prodding electricity providers, regardless of ownership, to exceed the state’s current goal of having 20 percent of their power come from renewable sources; backing the establishment of a cap and trade program for the electricity sector and designating the companies that deliver power to the state’s grid as the entities directly responsible for complying with AB 32’s requirements under such a program.
Although some groups, including those concerned about pollutants affecting poor and minority populations, have opposed cap and trade markets, the idea has gained support among other environmentalists and business groups. Peevey strongly backed the approach in remarks before the commission voted Thursday:
“A cap and trade program is likely to produce additional emissions reductions beyond the mandatory programs, it can tackle a wider variety of sources, potentially at a lower cost. It also encourages investment in innovative technologies that lower greenhouse gas emissions.”
But Peevey acknowledged that officials have only just begun to take on what he called the “thorny issue of allocation,” referring to the critical question of how emissions credits or “allowances” will be distributed among those producing greenhouse gases. Under a cap and trade system, credits represent the right to emit a certain amount of greenhouse gases. The document approved by the two commissions recommends that some credits be auctioned, suggesting that the money be used to benefit ratepayers or support energy efficiency and renewable energy investments. But it does not resolve important questions such as what proportion of the credits should be auctioned and how many sold or given away for free:
"Based on the current record, we are not able to determine the proper
relative roles of auctions and administrative allocation of allowances in a
deliverer-based system. Several parties recommend that there be a gradual
transition over several years from relatively more administrative allocations
initially to relatively greater reliance on allowance distribution via auctions.
Distributing some amount of allocations administratively in the early years of
the program could reduce the immediate impact on entities that would bear the
costs of obtaining allowances, and would give them more time to develop
emission reduction strategies. Based on the current record, it may be reasonable
to provide a transition from small amounts of auctioning in the early years to
greater amounts in later years. However, we require more analysis before
making a determination on this issue."
Peevey, during his presentation, said it would not be the commissions’ intention to punish utilities based on their past investments or decisions made prior to the passage of AB 32. However, he cautioned that the state’s retail electricity providers “are starting off in very different positions” with respect to their emissions. He noted, for instance, that some large public utilities spew twice as much carbon dioxide per unit of energy produced than do the state’s private utilities and some other public entities.
The allocation recommendation is expected to be addressed in a subsequent document to be ready in August.
Although other commission members lauded the recommendation, Commissioner Timothy Alan Simon expressed some concerns about the potential impact on municipally owned utilities. He said he would “closely monitor” the next phase to make sure that those utilities, over which the commission has no regulatory authority, are “treated fairly.”
