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California climate skirmish — a taste of things to come

Regulators have won praise for speed and thoughtfulness with which they have laid the groundwork for implementation of AB 32, the landmark bill that aims to bring California’s greenhouse gas emissions down to 1990 levels by 2020. But even within a single state, climate change legislation creates winners and losers, and regional tensions are starting to show.

California’s climate plan consists of a slew of new efficiency standards, regulations, and reduction measures — as well as a cap-and-trade system to place a lid on total emissions. It’s the cap-and-trade system that is part of the present pushback.

At issue in particular are the long-term contracts that the Los Angeles Department of Water and Power (DWP) has entered into for coal-based electricity. Although coal has kept LA’s electricity some of the cheapest in the state, the utility will have to pay enormous sums for carbon allowances under the new law.

It’s always instructive to unpack some of the distortions that surround the politics of climate change legislation. Officials from LA seem to be trying out three different angles in their resistance to the bill. The first is that the steep cost of the allowances will divert money away from their own energy efficiency and renewable energy programs.

> Officials with the utility, which serves 4 million residents, project it will have to pay $700 million annually in fees for burning coal under the cap-and-trade system being considered. That will divert money it currently spends on expanding energy efficiency and renewable energy programs, said David Nahai, the DWP’s general manager.

> “It will certainly affect our customers,” said Nahai, whose agency is lobbying the Schwarzenegger administration to reconsider its strategy.

The implication is that the fines will actually harm the environment by siphoning money from all the great green work DWP is doing. The logic here is flawed in at least three different ways:

* Raising prices for electricity from coal is itself an efficiency program, providing a powerful incentive to DWP’s customers to use less energy.
* And, of course, the hefty fines are a spur to DWP to speed up investments in efficiency or renewables. Any ton of CO2 they can reduce directly for less than the cost of an allowance will be a benefit to their bottom line. For example, maybe DWP can take another look at those smart meters that SoCal Edison is handing out in San Diego.
* Under a cap-and-trade system, that $700 million is going to get paid out to other polluters who can do a better job than DWP at reducing emissions. Even if we take at face value the claim that the fine will reduce funds for DWP’s own efficiency programs, that’s OK. It just means that someone somewhere else has a better efficiency program.

The second line of attack is to pretend that cap-and-trade is a form of accounting trickery that won’t bring about “real” reductions:

> “We expected more nuts and bolts on real emission reductions. Instead, the easy way out for everybody, as it has been in Europe, is a cap-and-trade system,” Nunez said. “That’s not really what this is about. The reason you have to mandate reductions is, if you don’t, you don’t force investors to bring technologies into place.”

But of course, a cap is a mandated reduction. The only way “nuts and bolts” proposals for enforcing specific technologies will work out better for DPW is if the regulations result in fewer greenhouse gas reductions than would take place under cap-and-trade (otherwise there’d be no issue — DPW could just choose to implement the technologies to meet its obligations under the cap). Put more simply: this is a roundabout way of asking for a weaker bill.

The third line of attack is basically the equivalent of yelling boo: making vague insinuations about market manipulators, Enron, rolling blackouts, “untested financial schemes,” etc. One has to imagine that this sort of thing is remarkably effective in California.

But hopefully not too effective. California’s experience will be important for the nation as a whole, and regulators are moving swiftly in the right direction.

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