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AB 32 Implementation Update: The Energy Sectors

(Electricity and Natural Gas)

AB 32 Implementation Update: AB 32 Implementation Update: The Energy Sectors The Energy Sectors

(Electricity and Natural Gas)(Electricity and Natural Gas)

California Air Resources BoardCalifornia Air Resources Board

April 24, 2008April 24, 2008

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Sector Profile: Electricity & Natural Gas

Sector Profile: Electricity & Natural Gas

• Electricity Sector– Fossil-fired power plants (in State and imports)– Large hydroelectricity– Nuclear – Renewables (small hydro, wind, solar, biomass,

geothermal) – Cogeneration

• Natural Gas Sector– Residential and commercial combustion

• Space heating, cooking, and hot water

• Electricity Sector– Fossil-fired power plants (in State and imports)– Large hydroelectricity– Nuclear – Renewables (small hydro, wind, solar, biomass,

geothermal) – Cogeneration

• Natural Gas Sector– Residential and commercial combustion

• Space heating, cooking, and hot water

NATURAL GAS

3

2%

5%

2%

0%

2%

41%

16%

13%

11%

19%

Natural Gas12%*

88%<10%*

>90%

12%*

88%62%*

38%

23%*

77%

Wind

Biomass

Geothermal

Small Hydro

Large HydroRenewables

11%

NuclearCoal

California’s Electricity Mix(2006)

California’s Electricity Mix(2006)

*Imports (%)

In State (%)

0.2% Solar

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Per Capita Electricity Use in California and the US

Per Capita Electricity Use in California and the US

CEC 2007 IEPR

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Inland Growth Will Spur Peak Demand

Inland Growth Will Spur Peak Demand

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CEC, 2007 IEPR CEC, 2007 IEPR

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Emissions, Health, and Climate Change

Emissions, Health, and Climate Change

• Power plant emissions contribute to ozone and particulate matter.

• State Implementation Plan (SIP) strategies will continue to reduce criteria pollutants and air toxic emissions

• Strategies to reduce GHG emissions from these sectors will also further reduce air pollutants

• Power plant emissions contribute to ozone and particulate matter.

• State Implementation Plan (SIP) strategies will continue to reduce criteria pollutants and air toxic emissions

• Strategies to reduce GHG emissions from these sectors will also further reduce air pollutants

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2004 GHG Emissions(480 MMTCO2E)

2004 GHG Emissions(480 MMTCO2E)

20%6%

40%

6%3%

12%

13%Elec. Gen. (Imports)

CommercialResidential

Transportation

AgricultureIndustrial

Elec. Gen. (In State)

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CARB 2007

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Emissions (Natural Gas and Electricity)

Emissions (Natural Gas and Electricity)

0

20

40

60

80

100

120

140

160

180

200

1990 2004 2020 BAU

Electricity Imports Instate Electricity Natural Gas Residential Natural Gas Commercial

150

194

mm

tco2

e

159

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2004 Electricity-Related Emissions

Source: CEC (for electricity sales); CARB (for emis sions inventory)

Imports In State

Emissions (mmtCO2e)

Electricity Sales (MWh)

77% 56%

44%23%

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Emissions Intensity(Tons CO2e/GWh in 2005)

Emissions Intensity(Tons CO2e/GWh in 2005)

0

100

200

300

400

500

600

PG&E SDG&E SMUD SCE LADWP

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CPUC 2008

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Starting Points For AB 32 Reductions

Starting Points For AB 32 Reductions

GHGReductions

GHGGHGReductionsReductions ~ ~~ ~

Energy EfficiencyEnergy

EfficiencyRenewable

EnergyRenewable

EnergyEmission Limits for

Generators

Emission Limits for

Generators+ +

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New Measures, Policies, Implementation Tools

EXISTING REQUIREMENTS

• CEC/PUC Policies & Standards

• AB 2021

• CEC/PUC Policies & Standards

• AB 2021

•SB 1078•RETI•CA Solar Initiative

•SB 1078•RETI•CA Solar Initiative

SB 1368SB 1368

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Compliance AlternativesCompliance Alternatives

• Direct Regulation– Command and control– Adopted policies – Performance standards

• Market-Based Control Mechanisms– Complements or supplements existing regulations

and policies– Objective: to provide the greatest environmental

benefit at the least cost

• Direct Regulation– Command and control– Adopted policies – Performance standards

• Market-Based Control Mechanisms– Complements or supplements existing regulations

and policies– Objective: to provide the greatest environmental

benefit at the least cost

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Energy Efficiency Concepts

Energy Efficiency Concepts

• Updated Appliance and Building Standards

• Water and Energy Utility Partnerships

– Water conservation to reduce treatment and pumping

– Energy efficient water pumps

• Energy Efficiency Targets

– Broader penetration in commercial, industrial, and residential sectors

• Smart Growth and Land Use Strategies

• Updated Appliance and Building Standards

• Water and Energy Utility Partnerships

– Water conservation to reduce treatment and pumping

– Energy efficient water pumps

• Energy Efficiency Targets

– Broader penetration in commercial, industrial, and residential sectors

• Smart Growth and Land Use Strategies

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Energy Generation Concepts

Energy Generation Concepts

• Renewable Generation– Evaluate potential for greater generation from

renewables – California Solar Initiative

• Targets and manufacturer incentives

• Conventional Generation – Evaluate feasibility for updated Emissions Performance

Standard

• Distributed Generation/Cogeneration– Self-Generation Incentive Program

• Incentives to install clean distributed generation (e.g., fuel cells)

– AB 1613 will encourage combined heat and power units under 20 megawatts

• Renewable Generation– Evaluate potential for greater generation from

renewables – California Solar Initiative

• Targets and manufacturer incentives

• Conventional Generation – Evaluate feasibility for updated Emissions Performance

Standard

• Distributed Generation/Cogeneration– Self-Generation Incentive Program

• Incentives to install clean distributed generation (e.g., fuel cells)

– AB 1613 will encourage combined heat and power units under 20 megawatts

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New TechnologiesNew Technologies

• Research and Development– Carbon capture and sequestration deployment– Improvements in green and renewable generation

technologies and energy infrastructure– Bio-energy Action Plan to increase biomass in

fuels by 2010 and 2020– Pursue ETAAC recommendations

• Next Generation Standards– Buildings, appliances, construction, engines– “Smart Grid” Technologies

• Research and Development– Carbon capture and sequestration deployment– Improvements in green and renewable generation

technologies and energy infrastructure– Bio-energy Action Plan to increase biomass in

fuels by 2010 and 2020– Pursue ETAAC recommendations

• Next Generation Standards– Buildings, appliances, construction, engines– “Smart Grid” Technologies

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Compliance AlternativesCompliance Alternatives

• Direct Regulation– Command and control– Adopted policies – Performance standards

• Market-Based Control Mechanisms– Complements or supplements existing regulations

and policies– Objective: to provide the greatest environmental

benefit at the least cost

• Direct Regulation– Command and control– Adopted policies – Performance standards

• Market-Based Control Mechanisms– Complements or supplements existing regulations

and policies– Objective: to provide the greatest environmental

benefit at the least cost

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Market-Based Control Mechanisms

Market-Based Control Mechanisms

• Market Incentives– Rebates– “On Bill Financing”

• Cap and Trade– Set CO2 emissions cap over sectors (e.g., electricity, industry)– Cap declines over time – Auction/distribute emission allowances– Carbon price is set by market participants (“points of regulation”)– Emissions reductions (cap) is specified for the planning period

(e.g., 2012-2020) – allows for long-term planning

• Market Incentives– Rebates– “On Bill Financing”

• Cap and Trade– Set CO2 emissions cap over sectors (e.g., electricity, industry)– Cap declines over time – Auction/distribute emission allowances– Carbon price is set by market participants (“points of regulation”)– Emissions reductions (cap) is specified for the planning period

(e.g., 2012-2020) – allows for long-term planning

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Electricity in Cap & Trade Programs

Electricity in Cap & Trade Programs

• The Electricity Sector plays a prominent role in cap & trade programs adopted elsewhere– European Union Emissions Trading Scheme

• Included in a multi-sector economy wide cap & trade program

– Regional Greenhouse Gas Initiative• Cap & Trade limited to the Electricity Sector on Northeast

States– SO2 Acid Rain Program

• Mandatory national cap & trade program for power plants– NOx/SOx RECLAIM Program

• South Coast Air Quality Management District• Major industrial sources, including power plants

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CPUC/CEC Role in the AB 32 Process

CPUC/CEC Role in the AB 32 Process

• AB 32 emphasizes a comprehensive, multi-sector approach to reduce greenhouse gases

• CPUC and CEC work closely with ARB – provide a unified programmatic approach to address

AB 32 requirements for GHG reductions from electricity and natural gas sectors

• March 2008 CPUC/CEC recommendations :Policy principles on how best to integrate energy sector policies and standards into Scoping Plan strategies to meet the 2020 target

• AB 32 emphasizes a comprehensive, multi-sector approach to reduce greenhouse gases

• CPUC and CEC work closely with ARB – provide a unified programmatic approach to address

AB 32 requirements for GHG reductions from electricity and natural gas sectors

• March 2008 CPUC/CEC recommendations :Policy principles on how best to integrate energy sector policies and standards into Scoping Plan strategies to meet the 2020 target

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CEC/CPUC Recommendations: Mandatory Programs

CEC/CPUC Recommendations: Mandatory Programs

• Require all “retail providers” of electricity and natural gas to achieve minimum levels of energy efficiency and renewable energy

• Require all retail providers to deliver cost-effective energy efficiency

• Require all retail providers to go beyond current 20% renewable portfolio standard

• Require all “retail providers” of electricity and natural gas to achieve minimum levels of energy efficiency and renewable energy

• Require all retail providers to deliver cost-effective energy efficiency

• Require all retail providers to go beyond current 20% renewable portfolio standard

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CEC/CPUC Recommendations: Cap-and-Trade

CEC/CPUC Recommendations: Cap-and-Trade

• Delay inclusion of natural gas in a cap-and-trade a pproach– Fewer options to reduce emissions in this sector– Decision should await emission calculation protocols for the local

distribution company (retail provider) as the point of regulation

• Integration of the electricity sector in a multi-se ctor cap and trade approach– Within context of AB 32 requirements

• Electricity “Deliverer” should be the point of regul ation– Entity that first delivers electricity onto the transmission grid in

California

• Auction some portion of allowances – Higher prices for higher carbon intensity electricity (e.g., coal)– Rewards use of renewables and energy efficiency (the cleaner the

electricity, the fewer allowances have to be purchased)

• Distribute majority of auction revenues for benefit of consumers

• Delay inclusion of natural gas in a cap-and-trade a pproach– Fewer options to reduce emissions in this sector– Decision should await emission calculation protocols for the local

distribution company (retail provider) as the point of regulation

• Integration of the electricity sector in a multi-se ctor cap and trade approach– Within context of AB 32 requirements

• Electricity “Deliverer” should be the point of regul ation– Entity that first delivers electricity onto the transmission grid in

California

• Auction some portion of allowances – Higher prices for higher carbon intensity electricity (e.g., coal)– Rewards use of renewables and energy efficiency (the cleaner the

electricity, the fewer allowances have to be purchased)

• Distribute majority of auction revenues for benefit of consumers

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Reaction to Recommendations

Reaction to Recommendations

• Most parties in joint proceeding pleased with recom mendations

• Two major areas of concern:– Some publicly-owned utilities oppose auctioning of allowances, and desire

an “opt out” of cap & trade system– Some comments that cap & trade recommendations were made without

analysis of AB 32 requirements for market measures

• CPUC/CEC continuing work– Number of changes made to the final decision in response to comments– Work with ARB to ensure ultimate recommendation meets AB 32 tests– Current focus in joint proceeding on allowance allocation policy, taking into

account equity considerations and impact on consumer costs

• Most parties in joint proceeding pleased with recom mendations

• Two major areas of concern:– Some publicly-owned utilities oppose auctioning of allowances, and desire

an “opt out” of cap & trade system– Some comments that cap & trade recommendations were made without

analysis of AB 32 requirements for market measures

• CPUC/CEC continuing work– Number of changes made to the final decision in response to comments– Work with ARB to ensure ultimate recommendation meets AB 32 tests– Current focus in joint proceeding on allowance allocation policy, taking into

account equity considerations and impact on consumer costs

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SummarySummary

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• Considerations for greenhouse gas reductions from these sectors– General agreement that we need additional regulations– By providing flexibility, cap and trade can achieve greater

reductions at less societal cost than under direct regulations only

• How we achieve emission reductions will affect choices and costs– What sources will generate the power we use, – How much will we need, – What more can we do to be more energy efficient, – Which regulatory approaches can lead to the greatest

environmental and public health benefits at the least cost

• Considerations for greenhouse gas reductions from these sectors– General agreement that we need additional regulations– By providing flexibility, cap and trade can achieve greater

reductions at less societal cost than under direct regulations only

• How we achieve emission reductions will affect choices and costs– What sources will generate the power we use, – How much will we need, – What more can we do to be more energy efficient, – Which regulatory approaches can lead to the greatest

environmental and public health benefits at the least cost

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Key Events in 2008Key Events in 2008

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• May – Scoping Plan workshop on economic modeling analysis– Board Workshop: Overview of major program design options for

Scoping Plan

• Late June– Draft Scoping Plan release

• July– Scoping Plan Workshops throughout the State

• August – CPUC/CEC comprehensive policy recommendations

• November – Consideration of Scoping Plan adoption

• May – Scoping Plan workshop on economic modeling analysis– Board Workshop: Overview of major program design options for

Scoping Plan

• Late June– Draft Scoping Plan release

• July– Scoping Plan Workshops throughout the State

• August – CPUC/CEC comprehensive policy recommendations

• November – Consideration of Scoping Plan adoption

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Continuing EffortsContinuing Efforts

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• Interagency Coordination– Cal/EPA and Energy Climate Action Team

• Western Climate Initiative – Any agreement by California will be in the context of

applicable AB 32 and CEC/CPUC policies

• Federal Legislation– Staff is tracking bills in Congress– Legislation a possibility within 24 months

• Socio-economic Assessments/Modeling• Outreach

• Interagency Coordination– Cal/EPA and Energy Climate Action Team

• Western Climate Initiative – Any agreement by California will be in the context of

applicable AB 32 and CEC/CPUC policies

• Federal Legislation– Staff is tracking bills in Congress– Legislation a possibility within 24 months

• Socio-economic Assessments/Modeling• Outreach