Southern California Edison Company's
Comments on WCI Draft Scoping Plan

MICHAEL D. MONTOYA

LAURA I. GENAO

CATHY KARLSTAD

Attorneys for
SOUTHERN CALIFORNIA EDISON COMPANY

2244 Walnut Grove Avenue
Post Office Box 800
Rosemead, California 91770

Telephone:(626) 302-6842

Facsimile:(626) 302-1935

E-mail:

I.introduction

Southern California Edison Company (“SCE”) commends WCI Partners (“WCI”) for the effort and quality of work found in the Draft Scope recommendations (“Draft Recommendations”).SCE provides the following comments on the Draft Recommendations and encourages WCI to consider them as it moves the Draft Recommendations forward.

II.Liquid Transportation Fuels Should Be Included In Any Cap-And-Trade Program From The Outset

SCE appreciates WCI’s desire to pursue further modeling as it attempts to gain greater understanding of the impact of including liquid transportation fuels in a cap-and-trade program. WCI should, however, go further than simply modeling the effects of liquid transportation fuels. As the largest source of greenhouse gas (“GHG”) emissions, liquid transportation fuels must be included in any recommended cap-and-trade program in order to maximize benefits to WCI. The reasons for including liquid transportation fuels within any cap-and-trade program are:

  • Including transportation fuels will reduce the overall economic impact to consumers;
  • Delaying the inclusion of transportation fuels will only delay critical investment needed for achievement of long-term goals;
  • Including transportation fuels within a cap-and-trade program will encourage solutions beyond what is required by direct regulations and will lead to a greater and more equitable shifting of GHG regulation to stationary resources; and
  • Excluding such a large source of emissions will increase the risk that the WCI will not meet its reduction targets.

A.Including Transportation Fuels Will Reduce The Overall Economic Impact To Consumers

By creating a cap-and-trade program that includes a large and diverse group of sectors, regulated entities will be given the ability to select least-cost abatement options for reducing GHG emissions. This flexibility will reduce overall program costs, with the majority of such cost savings being transferred to consumers.[1] By contrast, if direct regulation is used, regulated entities will be limited in their abatement options. They will have to select from those options pre-determined by regulators. Given the uncertainty around future costs and development of new technology, such pre-determined options may not be the most cost-effective abatement options.

For example, consider a scenario where transportation fuels are excluded from a cap-and-trade program while the electric sector is included. Economic modeling forecasts that the electric sector has enough low-cost abatement options to cover emission reductions for both the electric sector and a portion of the transportation sector. The cap for the electric sector is set below its proportional share of emission reduction to cover reductions in the transportation sector. Several years in the future an unexpected technological development reduces the cost of lithium-ion batteries and the cost of electric vehicles is significantly less than what the economic model predicted. Additionally, the cost of renewable generation and the new transmission lines needed to access the renewable power escalates beyond what the model forecasted. Because the electric sector is included in a cap, consumers will be forced to pay for these costly abatement options despite the availability of lower cost options in the transportation sector.

Further, because transportation fuels are excluded from the cap, consumers will not see a price signal that will encourage them to purchase more electric, or other low carbon, vehicles. This hypothetical scenario is very plausible and could occur. If, however, WCI encourages the inclusion of transportation fuels within the cap-and-trade program from the outset, then consumers can benefit from unexpected technology developments, as well as be shielded from unanticipated cost escalation in certain regulated programs.

Although a valuable tool, computer models/simulations will not capture all of the future benefits and technological developments which will result by including transportation fuels in the cap-and-trade program. Accordingly, SCE urges WCI to utilize modeling results in conjunction with sound environmental economics to evaluate the benefits of including transportation fuels in a cap-and-trade program.

B.Delaying The Inclusion Of Transportation Fuels Will Only Delay Critical Investments That Need To Be Made To Reach Long-Term Goals

Inclusion of transportation fuels within a cap-and-trade program provides certainty to industry and consumers who must make investments which will reduce their emissions. History has shown that the short-run demand for transportation fuels is very inelastic. Spikes in fuel prices have had very little impact on consumption. However, over the long-run, demand for transportation fuels is elastic and consumers modify their behavior in response to a sustained increase in fuel prices and fuel availability. This was demonstrated in the United States during the early 80s when drivers shifted to smaller, more fuel efficient vehicles in response to sustained higher fuel prices. It is also evident in Europe where fuel prices are higher than the United States and where vehicles have correspondingly higher fuel economies. Such changes in behavior do take time and require certainty in future prices. By including transportation fuels in the cap from the outset, industry and consumers will have the confidence to make long-term financial decisions to reduce emissions.

C.Including Transportation Fuels Within A Cap-And-Trade Program Will Encourage Solutions Beyond What Is Required By Direct Regulations

There is no silver bullet for reducing emissions from the transportation sector. Reducing emissions from this sector will require a multitude of solutions, some known, some yet to be conceived. SCE believes realization of emission reductions will require a combination of the following solutions:

  • More fuel efficient vehicles;
  • Electric vehicles;
  • Low carbon fuels such hydrogen, natural gas, bio-fuels;
  • Increase usage of rail for commercial transportation;
  • Increased rideshare participation (carpool/vanpool);
  • Increased use of pubic transportation;
  • Increased use of flexible work weeks;
  • Increased use of tele-commuting;
  • Revitalization of urban areas (living closer to work); and
  • Other, still to be developed, solutions.

Despite the best intentions of WCI and its stakeholders, it would be impossible to create rules or regulations encouraging all of the above solutions, especially since some have yet to emerge. Nevertheless, by including transportation fuels within the structure of a cap-and-trade program, entities will have economic incentives to pursue the aforementioned options.

D.Excluding A Large Source Of Emissions Will Increase The Risk That The WCI Will Not Meet Its Reduction Targets

The benefit of including transportation fuels within a cap-and-trade program is that it will afford WCI greater certainty about reaching established emission reduction targets. A cap creates a defined limit on emissions that, although not guaranteed,[2] provides a high level of certainty for reaching emission reduction goals. The adoption of direct regulations provides no such certainty and leaves WCI at risk of failing to reach environmental goals.

E.The Point Of Regulation For Transportation Fuels Should Be Modeled After That Chosen For The Electric Sector--The Refinery/Importer

After extensive analysis and evaluation, the electric sector has been able to devise a point of regulation that is upstream and captures emissions from imports. This method could be readily transferred to liquid transportation fuels.

Refineries in the transportation sector are analogous to power plants in the electric sector. WCI states that, “Regulation at the refinery is challenging because a significant fraction of WCI’s liquid fuel use comes from refineries that are outside of the WCI.”[3] This is the same challenge faced by the electric sector.

The electric sector has managed to resolve the issue of imports by using a “deliverer” point of regulation. WCI should evaluate the use of the deliverer point of regulation for liquid transportation fuels.

F.A Cap-And-Trade Program Should Include As Many Sectors And Emission Sources As Possible To Lower Overall Costs And Provide Liquidity For Emission Allowances

The greater the number of sectors and emission sources that are included within a cap-and-trade program, the more low cost abatement options will be available. Access to low cost abatement options allows WCI to reach its emission reduction targets for a lower cost. Including more regulated entities also increases liquidity in the secondary market for emission allowances. Such liquidity will help reduce overall program costs.

G.A Cap-And-Trade Program Should Have Only One Aggregate Cap, Not Individual Sector Caps

For a cap-and-trade program to effectively utilize low-cost abatement options individual sectors should not be capped. If one sector has an abundance of low-cost abatement options then other sectors can utilize them for the benefit of consumers.

III.conclusion

For all of the foregoing reasons, SCE urges WCI to consider the inclusion of liquid transportation fuels within a cap-and-trade program.

Respectfully submitted,

MICHAEL D. MONTOYA

LAURA I. GENAO

CATHY KARLSTAD

/s/ Laura I. Genao

By: / Laura I. Genao

Attorneys for
SOUTHERN CALIFORNIA EDISON COMPANY

2244 Walnut Grove Avenue
Post Office Box 800
Rosemead, California 91770

Telephone:(626) 302-6842

Facsimile:(626) 302-1935

E-mail:

March 17, 2008

1

[1]It is consumers who ultimately bear the majority of the costs associated the with emission reductions

[2]Depending on the use of flexible compliance mechanisms such as a safety valve, banking, borrowing, emission targets may not be reached in a given year.

[3]Western Climate Initiative Draft Program Scope Recommendations, Appendix B, p. 25