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Monday, March 05, 2007

Progressive California Policy Makes It a Model in Global Warming Fight

Since 1974, California has held its per capita energy consumption essentially constant, while energy use per person for the United States overall has jumped 50 percent.

California has managed that feat through a mixture of mandates, regulations and high prices. The state has been able to cut greenhouse-gas emissions, keep utility companies happy and maintain economic growth. And in the wake of the Intergovernmental Panel on Climate Change report on global warming, California serves as a model for other states seeking a similar path to energy reduction. Now California is pushing further in its effort to cut automobile pollution, spur use of solar energy and cap greenhouse gases.

"California really represents what the rest of the country could do if it paid a bit more attention to energy efficiency," says Greg Kats, managing principal at Capital E, an energy and clean-technology advisory firm. "California is the best argument we have about how to very cost-effectively both reduce energy consumption and cut greenhouse gases. And they've made money doing it." Kats estimates that the average Californian family spends about $800 a year less on energy than it would have without efficiency improvements over the past 20 years.

Today, as an energy consumer, California is more like thrifty Denmark than the rest of the energy-guzzling United States. While the average American burns 12,000 kilowatt-hours a year of electricity, the average Californian burns less than 7,000 -- and that's counting renewable energy sources.

California has managed to cut its contributions to global warming, too. Carbon dioxide emissions per capita in California have fallen by 30 percent since 1975, while U.S. per capita carbon dioxide emissions have remained essentially level.

The reason for California's success is no secret: Electricity there is expensive, so people use less of it. Thanks to its use of pricey renewables and natural gas and its spurning of cheap coal, California's rates are almost 13 cents a kilowatt hour, according to the Energy Information Administration. The other most-energy-frugal states, such as New Jersey and New Hampshire, charge about 12 cents and 14 cents a kilowatt hour, respectively. Hawaii, which relies on oil-fired plants, tops EIA's list at about 21 cents.

Besides high prices, California has long-standing mandates. In 1974, the state enacted its first building standards for energy efficiency.

In 1976, the governor, Jerry Brown, was looking for a way to make good on his pledge to stop the construction of the proposed one gigawatt Sundesert nuclear plant in Southern California. The answer turned out to be refrigerators -- more efficient refrigerators.

Next, California adopted an innovative approach to utility regulation called decoupling so that the utilities' profits were no longer linked to simply increasing sales.

Before then, electric utilities made more money when people bought more electricity. So a Midwest utility gave away energy guzzling light bulbs; in California and elsewhere, electric utilities promoted electric stoves or electric water heaters, appliances that run more cleanly and efficiently on natural gas.

In 1982, the state Public Utilities Commission came up with the decoupling idea that would allow utility profits to grow while sales declined. It set separate targets for utility revenue and electricity usage; excess revenue would be returned to consumers; a shortfall in revenue would be added to the next year's consumer bills. Greater efficiency could boost profit margins. Rates are now reviewed every six to 12 months instead of every three years. (A similar approach for natural gas utilities had been adopted in 1978.)

The power companies quickly altered their focus. Now, Rosenfeld says, the state and the utilities spend $700 million a year to promote energy efficiency. "It's cheaper than building power plants," he says. At the moment, the program has expired but is up for renewal.

California remains the only state to have adopted decoupling, though proposals are pending in seven states.

Energy-efficiency targets are also built into California's solar promotion program. To qualify for a $2,000 rebate, homeowners must show that their homes beat building standards for energy efficiency by 15 percent or more. Often, a change in the color of a home's roof from black to white can save as much electricity as the new solar panels generate, Rosenfeld says.

But much of the motivation remains economic. The state's disastrous experiment in electricity deregulation -- deregulating supplies while capping retail prices -- led to a supply crisis and rolling blackouts in 2001. Soon, prices rose; PG&E sought bankruptcy protection.

Many manufacturers complain that the high electricity prices make the state an unappealing place to do business. Since 2001, California has lost 375,000 manufacturing jobs, a 19.9 percent drop that slightly exceeded the nationwide decline of 17 percent. Some firms -- such as Buck Knives, with 250 jobs, or bottle manufacturer Bomatic, with 100 jobs -- moved to states such as Idaho or Utah, where they said expenses, including energy, were lower.

Gino DiCaro, a spokesman for the California Manufacturers and Technology Association, says manufacturing investment is also "stalled" because of uncertainty about how the new legislation authorizing limits on greenhouse gases will affect energy costs.

Labels: California, energy, Greg Kats, Intergovernmental Panel on Climate Change, Jerry Brown, Public Utilities Commission