August 30, 2006
California Bill To Cut Greenhouse Gases 25% By 2020

California's legislature and Governor have agreed to a bill that will require a 25% cut in greenhouse gases by 2020.

Democratic lawmakers and Gov. Arnold Schwarzenegger on Wednesday struck a deal on legislation to reduce the state's greenhouse gas emissions by 25 percent over the next two decades.

...

Under the bill, California would take the lead in limiting greenhouse gas by reducing emissions to 1990 levels by the year 2020.

This can only be accomplished by either much higher energy prices or big technological advances. California has a better chance of achieving this goal of the price of oil remains high.

California's economy and population have grown since 1990. So to reach the 1990 level of emissions California will have to cut emissions 25%.

Democrats and top aides to Gov. Arnold Schwarzenegger have spent the last few months negotiating a bill that would put the state on the path to reducing its emissions by an estimated 25 percent by 2020, to the levels of 1990.

But the cut per capita will be higher due to population growth which will occur in the next 15 years. Though the state government could (at least in theory) set fossil fuels energy taxes so high that the population of the state declines.

The California Air Resources Board will be empowered to force industries to cut back on their emissions.

The bill gives the California Air Resources Board, which enforces the state’s air pollution controls, the lead authority for generally establishing how much industry groups contribute to global warming pollution, for assigning emission targets, and for setting noncompliance penalties. It sets out a two-year time frame, until 2009, to establish how the system will operate and then allows three years, until 2012, for the industries to start their cutbacks.

Will California state, county, and local governments be forced to reduce emissions by 25%? Or will they take the "Do as I say, not as I do" approach.

Also, will most of the requirement for emissions reduction be placed on industry and not on private individuals or governments? If that happens then the percentage decrease in energy for industry will be much higher than 25%.

Will some future California legislature scale back the ambitions of this law? Will exemptions be made or time tables changed? I suspect so.

Rising energy prices in California will drive higher energy using industries to move to other states or abroad. Also, rather than build CO2 emitting coal and natural gas fed electric power plants the state government could let electric prices rise until demand falls enogh to cause a great reduction in CO2 emissions by power plants.

Update: Think about the politics involved in implementing such a large reduction in CO2 emissions. Will fear of the mass of voters prevent the California state government from upping gasoline taxes? If so, the goal becomes hard to meet by energy demand reduction.. Demand for energy will rise greatly by 2020. The size of reduction needed as compared to trend is probably more on the order of 35% or 40%. How to accomplish that without providing a strong disincentive against use of vehicles?

The big recent run-up in oil prices has temporarily almost stopped the growth in US oil demand,. But to actually reverse oil demand growth and by such a large amount is far harder. It can be done with prices or with technological innovations. To do it with prices probably would require an additional gasoline tax of $3 or $4 or $5. Elected representatives of the people aren't going to do that to their voters - not in America anyway.

Biomass might be able to do it. The ratio of hydrocarbons out to hydrocarbons in for farming will improve in the next 15 years. Cellulosic technology and bioengineered plants could make biomass ethanol a viable way to reduce net carbon emissions.

Another possibility comes from breakthroughs in battery technology. A shift to electric cars would make it pretty easy to make a huge cutback in carbon dioxide emissions. Electric power plants burning coal and natural gas could probably sequester carbon for about 2 cents a kilowatt hour. Also, wind power will get cheaper.

I also wonder how much the goal will get met by cheating. How to cheat? Buy electricity from another state. Build electric power generator plants in Nevada and ship the electric power in. Emissions would drop in California.

Heavy energy using industries in California should start developing their exit strategies. Their cheapest way to emit less in Calfornia is to emit more somewhere else.

I also expect a lot of money to pour into lobbying in Sacramento as various industries and groups play a game of political hot potato and try to win exemptions for their groups from emissions reductions requirements.

Update II: Carbon emissions credits trading might help some industries comply - albeit at a price.

The costs of achieving the goals of the new legislation are unknown. Traditional coal-fired power plants emit about a ton of carbon dioxide per megawatt-hour generated. State-of-the-art gas-fired power plants emit about half that amount. Currently, credits for voluntary reductions in the U.S. trade for anywhere from $1 a ton to $5 a ton. However, nobody knows what those prices will be under a mandatory, California-only market.

$1 per 1000 kwh would be a tenth of a penny per kwh as compared to a California electric price of about 13 cents per kwh or about 8 cents per kwh nationally. So a tenth of a penny wouldn't impact electric power prices much. But I do not see where a supply of carbon credits would be large enough to supply the entire electric power industry.

The legislation is aimed at big industry - which really limits how much it can accomplish.

The California plan, which won final legislative approval Thursday but which still faces a battle in the courts before it can take effect, calls for a 25 percent cut in emissions of carbon dioxide by 2020. It envisions controls on some of the largest industrial groups including utilities and oil refineries.

Oil can get refined in other states and piped in. Big computer server farms can move out of the state and get accessed over the internet.

Lots of industries will be affected but I find no mention of restrictions on private individuals.

What businesses would be affected?

Utility plants, oil and gas refineries, factories and cement kilns, among other major emitters of the gases.

California can not accomplish its goal unless it reduces gasoline consumption. But it might not have the legal authority to cut tailpipe CO2 emissions. If the state government tries to cut everything else more in order to make up for the inability to cut vehicle tailpipe emissions then energy for non-transportation purposes will have to become very expensive.

I predict an increase in the import of refined oil products.

While environmentalists are hailing the measure, some businesses argue that the only way for oil refineries to meet the tough caps would be to reduce production of transportation fuels by 17%, said Tupper Hull, a spokesman for the Western States Petroleum Association trade group. "This has the potential to be very damaging to the California economy," Hull said. "It will put a lot of strain on the marketplace." Already, Hull said, the state's 14 refineries are operating at capacity, producing 45 million gallons of gasoline and diesel a day. California also imports 3.5 million gallons a day from other regions.

California can't stop that importation. If the state did then the importers could sue in federal court on US constitutional grounds.

Here is why I think that refiners and electric power generators from outside of California will be able to generate carbon emissions and sell their products into California unhindered by the state government's attempt to reduce greenhouse gas emissions.

Section 8. The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

To regulate commerce with foreign nations, and among the several states, and with the Indian tribes;

I expect we will see court cases fought over the application of this legislation where interstate commerce is involved. Sellers of electricity, refined oil products, and other products will fight in court for their ability to produce outside of California and sell into California. Oregon, Baja California Mexico and other neighoring regions will produce and sell more energy products into California as a result of this legislation.

Share |      Randall Parker, 2006 August 30 11:21 PM  Energy Policy


Comments
Ned said at August 31, 2006 5:45 AM:

This is another in a long series of California job export bills. Because of high taxes and regulations such as this, California has become known as a very business-unfriendly state. Recent population growth has been due entirely to immigration - there's a net outmigration of native-born US citizens from California. One of the reasons that Nevada is among the fastest growing states in the US - no state income tax and a climate free from overburdeninging regulations such as this one.

Jake said at August 31, 2006 8:10 AM:

Ned is right. This bill will succeed as ghost towns do not emit emissions.

Just as there was a huge migration into California in the 1930s, there is a huge migration out of California today. It is very difficult to find one-way UHaul trucks out of California and very easy to find UHauls into California.
One of the most high selling items in California Costcos, is a moving kit made up of packing boxes.

Power-using industries will move out of the state or out of the country. Even low power using industries will flee as It prevents virtually every company from expanding its operations.

The impact of this bill will fall almost completely on the shoulders of poor people.

Paul Dietz said at August 31, 2006 8:52 AM:

To look on the bright side, this may force companies locked into California to provide a market that pushes carbon sequestration technology. California is by an ocean (for sea disposal), has lots of magnesium-bearing rock (for mineral carbonation), and has old oil fields that could use CO2 stimulation. The chilled ammonia flue gas CO2 scrubbing system being piloted by EPRI may get the cost of extracting CO2 down to around $15/tonne (about half the cost of amine scrubbing), so the cost may not be all that large.

Does the law limit import of electricity from out of state CO2 emitters (and is that even allowed by the US constitution)?

Rob said at August 31, 2006 11:37 AM:

>This is another in a long series of California job export bills

Exactly. Only fools would open a new business in California these days. Only California politicians could be dumb enough to think that this will have any net effect on the planet as a whole. Industries targeted by this will simply move elsewhere, taking jobs and tax base with them. New headline:

California Bill to Cut Greenhouse Gases, Economy 25% by 2020

Randall Parker said at August 31, 2006 4:58 PM:

Paul Dietz,

California's government is constrained in what it can do by the US constitution's interstate commerce clause. I doubt they can stop the import of electricity generated from coal burning plants in Nevada.

I'm expecting the state to impose biomass requirements on gasoline.

One tricky issue they ought to deal with: How much net carbon emissions savings come from each biomass energy source? I doubt biodiesel from plant oil is a net energy saver for instance.

rsilvetz said at August 31, 2006 7:35 PM:

You got to be kidding me! The chance of this succeeding is absolute zero. All it is going to do is destroy jobs and livelihoods.

If they pass it, I GUARANTEE that about $1 billion in new gene splicing tech which is being targeted at CA will move to Nevada post-haste. I'm sure other business will feel the same. None of us business folk are going to take a multi-hundred percent increase in our costs for a non-issue.

And this constant harping on a non-problem by the world's environmentalists is getting so tiring. Repetitant juvant. Repeat after me. Global warming is a good thing. We are between ice-ages. The planet has NEVER been an arid desert. Solar output is at a relative high. Orbital Perturbation is the primary long term determinant.

Let me quote the essential paragraph on the topic from the chapter on celestial mechanics in New Foundations for Classical Mechanics pg. 512:

... it has been recently established that the major Ice Ages on Earth during the last million years have occurred regularly with a period of 100,000 years, and this can be explained with celestial mechanics as forced by oscillations in the Earth's eccentricity due to perturbations by other planets. Moreover, periodicities of minor Ice Ages can be explanded as forced by precession and nutation of the Earth's axis due to perturbation by the Sun and the Moon.

Get it people? CO2 emissions are utterly irrelevant to the motion of the planets (and solar output) and therefore, to global warming. If some idiot at some non-governmental agency hadn't made this another stupid UN-mandate by co-opting the explanation of Venus's high temperature, nobody in their right mind would even be considering this.

Eric McErlain said at September 1, 2006 8:07 AM:

As to the question of emissions from power plants in other states, it's important to also look at some companion legislation. This is from Marketwatch:

"In a separate but related bill approved Thursday, the state is moving to ban new long-term contracts for power supplies from coal-fired plants, at least until such plants operate with equipment still under development to control carbon dioxide. Though California doesn't have any coal-fired power plants, it gets about 20% of its electricity from such plants located in other western states. The second bill, Senate Bill 1368, was passed by the legislature Thursday, and it too is expected to be signed into law by Schwarzenegger."

So, California constrains the use of coal-generated electricity from outside the state and continues to insist on keeping its moritorium on new nuclear build. The only way to generate additional bulk electricity in this case would be natural gas. Unfortunately, North American reserves of natural gas are running down, and increasing their reliance on it will drive North American prices even higher, forcing more companies that rely on natural gas as a feedstock to move their operations overseas where natural gas prices are more stable.

Even better, sustained high prices for natural gas will hit farmers hard, driving up the cost of food -- which means you drive the cost of biofuels higher as well.

Of course, we also know the state will have to build LNG terminals to import gas over the long haul -- if they could actually agree on a spot to build one.

Paul Dietz said at September 1, 2006 8:34 AM:

In a separate but related bill approved Thursday, the state is moving to ban new long-term contracts for power supplies from coal-fired plants,

Maybe plants burning coal-derived fuels wouldn't fall under this ban? Synthetic methane, or the sidestream of light hydrocarbons from CTL plants, can be used with combustion turbines.

Eric McErlain said at September 1, 2006 11:37 AM:

I think the way it's worded limits its application to public utilities buying electricity.

James Bowery said at September 1, 2006 11:44 AM:

As Latin America spreads up the left coast...

gmoke said at September 1, 2006 3:57 PM:

"Banning CFCs will be too expensive. We will lose jobs and businesses. Lack of refrigeration will increase death and disease. Even if we can ban CFCs without destroying the economy, it will do little or nothing to reduce the stratospheric ozone thinning in the Antarctic and Arctic."

Instant replay much? Knee jerk, anti-enviro techno-scientific salvationists tend not to learn anything from even the history they've lived through. Just listen to S Fred Singer today and look up some of the things he said about CFCs back in the day before the Montreal Protocol.

Randall Parker said at September 1, 2006 5:51 PM:

Eric,

The California newspapers and the NY Times claim it applies to refineries, kilns, cement plants, and other industries.

But if they limit their regulation to electric power plants only how can they possibly achieve such a large reduction in emissions?

Here is a basic breakdown of where carbon emissions come from at a US national level. At a national level electric power accounts for 39% of total energy-related carbon dioxide emissions.

At 1,212.0 MMT, residential carbon dioxide emissions represented 21 percent of U.S. energy-related carbon dioxide emissions in 2004. The residential sector’s pro-rated share of electric power sector emissions, 837.3 MMT, accounts for more than two-thirds of all emissions in the residential sector (Table 7).56

...

Commercial sector carbon dioxide emissions, at 1,024.2 MMT, accounted for about 17 percent of total energy-related carbon dioxide emissions in 2004, of which 78 percent (795.4 MMT) is the sector’s pro-rated share of electricity-related emissions (Table 8). Natural gas contributes 16 percent and petroleum 6 percent of the sector’s emissions.

...

Industrial sector emissions, at 1,730.2 MMT carbon dioxide, accounted for 29 percent of total U.S. energy-related carbon dioxide emissions in 2004. In terms of fuel shares, electricity consumption was responsible for 38 percent of total industrial sector emissions (660.9 MMT), natural gas for 26 percent (441.9 MMT), petroleum for 26 percent (440.6 MMT), and coal for 10 percent (181.0 MMT).

...

Carbon dioxide emissions from the transportation sector, at 1,933.7 MMT, accounted for 33 percent of total U.S. energy-related carbon dioxide emissions in 2004. Almost all (98 percent) of transportation sector emissions result from the consumption of petroleum products: motor gasoline, at 60 percent of total transportation sector emissions; middle distillates (diesel fuel) at 22 percent; jet fuel at 12 percent of the total; and residual oil (i.e., heavy fuel oil, largely for maritime use) at 2.8 percent of the sector’s total emissions. Motor gasoline is used primarily in automobiles and light trucks, and middle distillates are used in heavy trucks, locomotives, and ships.

...

The data in Table 11 represent estimates of carbon dioxide emissions for the electric power sector. These emissions when taken as a whole account for 39 percent of total U.S. energy-related carbon dioxide emissions; in calculating sector-specific emissions, electric power sector emissions are distributed to the end-use sectors.

The commercial and residential sectors can not reduce their carbon emissions much without reducing their electric power usage. Either that or the utilities have to cut back their carbon emissions.

To meet their emissions reduction coals California will need to either force a shutdown of coal and natural gas generating electric plants or to force them to sequester carbon.

What will the cost of doing that?

James Bowery said at September 1, 2006 9:01 PM:

The cost?

That's contingent on how smart/stupid the folks with money are correct?

Back in the days of strong middle class California the cost would have been some finite amount of money well within the state's budget.

Now that California is Brazil El Norte the cost will be basically infinite.

Garson Poole said at September 2, 2006 10:44 AM:

Randall Parker said "Big computer server farms can move out of the state and get accessed over the internet." Even before this legislative deal to restrict greenhouse gases in California was publicly broached it was interesting to see where Google decided to build a massive server farm. They chose The Dalles, Oregon according to an InformationWeek article:

Why Oregon? "We're always looking for candidate sites to host our infrastructure--selecting a site always means balancing a number of factors, including the availability of land and power, as well as a suitable workforce," Holzle explains in an e-mail interview. "The Dalles was one of the sites we found that met our needs, plus it's a beautiful area to live."
The availability of “cheap power” was cited in media reports. The InformationWeek article notes that Google in financial documents discusses rising data center costs including energy. Yet, the article also suggests that the beauty of the location was important to attract talent because "Electric power may be expensive, but it's cheap compared to brainpower."

Randall Parker said at September 2, 2006 11:08 AM:

Garson,

The location of that Google data center was driven by cheap hydroelectric power. The US Northwest has cheap electricity because of lots of hydropower:

electricity costs more in California than in most states. California's electricity is about 12 cents per kilowatt-hour (kwh) and in New England it costs about 13 cents per kwh with 16.45 per kwh in New York (wow!) versus a US national average of 9.67, 8.32 for the Moutain states and 6.97 for Wyoming.

Google says their cost of electricity is on track to surpass their cost of computer hardware in a few years. But, yes, brain power costs even more.

I figure data centers will shift to the northwest. Kentucky is another obvious candidate for power-hungry computer server farms:

Therefore a chart of per capita energy usage by state shows Hawaii (22.83 cents per kwh), Rhode Island (14.84), New York (16.84), and California (12.98) at the 47th thru 50th spots. Whereas at the top of the list cheap electric Wyoming (6.97) has over three times the per capita electricity usage of California and not coincidentally about half the electric cost of the 4 lowest per capita electric using states. Prices have powerful effects on demand. The next biggest electricity using states are Kentucky (6.44), South Carolina (8.75), and Alabama (7.99). States with cheap electricity use more electricity. No surprise there.

Parenthetically, the already low per capita California use of electricity makes the state government's drive to reduce greenhouse gas emissions in California much more difficult than it would be in states which are heavier electricity users. California's electric cost per kwh will likely rise as mandates for use of renewable non-nuclear electricity drive up the cost of electric power generation. Maybe California will surpass New York State for cost of electricity per kwh.

cd said at September 5, 2006 5:05 PM:

Here we go again, whatever California does the other 49 states are not far behind. When half the state drops off into the Pacific I guarantee their emissions will drop by more than 25%. Meanwhile they'll import as much electricity as they can because they don't care what the supplying states' emissions are. The problem is the further the consumer is from the producer the more power is lost via impedience in the wires, the solution is generate the electricity as close to the consumer as possible. The problem with that solution is there are too many idiots that refuse to have a generating plant in their neighborhood, they don't want wind farms on their coast, or solar panels on their roofs, etc. Don't worry we won't need to worry about California after they ceed to Mexico, we'll just have more border to patrol.

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