Date: April 18, 2016
To: Silicon Valley Leadership Group Environment, Energy & Transportation Committees
RE: AB 32 Scoping Plan Update, Cap-and-trade post-2020 design & CAISO regional expansion
Issue
The California government is currently moving forward to make decisions to extend existing climate and clean energy goals beyond 2020. SVLG has the opportunity to meaningfully engage on these issues going forward. We are looking for direction from our members about where it is best to engage.
Staff Recommendation
Staff recommends engaging in the following high-impact areas that are in line with SVLG historic advocacy and that have key decision points upcoming this year:
· Providing input to California Air Resources Board (ARB) on the 2nd update to the Scoping Plan
· Engaging on Cap-and-Trade post-2020 design with ARB
· Advocate for extension of Cap-and-Trade via legislative statute beyond 2020
· Push for most efficient & least costly way to meet energy goals in CA ISO regional expansion
History of SVLG Engagement
· Long term legacy position: Since before AB 32 was passed in 2006, SVLG has supported putting a price on carbon, through the belief that it is important to send clear market signals to companies and investors in order to help our economy evolve from one that runs on fossil fuels to one that runs on clean renewable energy – in the process spurring the creation of new jobs.
· First mover: First business association to back AB 32 in the legislative process in 2006.
· Defender of AB 32: SVLG defended AB 32 when it came under attack at the ballot box in 2010, we were on the Executive & Steering Committees for No on 23.
· Climate Change Policy Leadership: SVLG engaged in the first scoping plan update process and has precedent in supporting policy development in a number of areas related to climate change; wetlands restoration, tax credits for electric vehicles, cap-and-trade, Low Carbon Fuel Standard (LCFS), Zero emission vehicles and the Renewable Portfolio Standard (RPS) to name a few. We have also supported SB 350 which set ambitious renewable procurement and energy efficiency goals for 2030 and SB 32 which would codify former Governor Schwarzenegger’s Executive Order S-5-05 for GHG reduction through 2050.
Background on Scoping Plan
In 2005, Governor Schwarzenegger signed Executive Order S-3-05 that required an 80 percent reduction below 1990 levels by 2050. This was closely followed by the signing of California’s landmark legislation known as the Global Warming Solutions Act of 2006 (AB 32).AB 32 created a comprehensive, multi-year program to reduce greenhouse gas (GHG) emissions in California and made the California Air Resources Board (ARB) the lead agency responsible for leading the push to reduce GHG emissions to 1990 levels by 2020. It required the California Air Resources Board (ARB) to develop a Scoping Plan that described the approach California will need to take to reduce GHGs to achieve this goal.
The Scoping Plan is to be updated at least every five years. It was first approved by the ARB in 2008 and the first update was approved on May 22, 2014. In the first update to the Scoping Plan (2013-2014), nine key focus area were identified (energy, transportation, agriculture, water, waste management, and natural and working lands), along with short-lived climate pollutants (SLCPs), green buildings and the cap-and-trade program. These efforts have put California on course to achieve the near-term 2020 goal and has created the framework for ongoing climate action that can be built upon to maintain economic sector-specific reductions beyond 2020.
On April 29, 2015, Governor Brown issued Executive Order B-30-15 which established a mid-term GHG reduction target for California of 40 percent below 1990 levels by 2030. The mid-term target is crucial to help frame policy measures, regulations, planning efforts and investments in clean technologies and infrastructure that are need to continue driving down emissions. All state agencies with jurisdiction over sources of GHG emissions have been directed to implement measures to achieve GHG emission reductions to meet the 2030 and 2050 targets. ARB is currently moving forward with the second update to the Scoping Plan to reflect the 2030 target established in Executive Order B-30-15.
Based on the Governor’s Executive order, 5 key focus areas were selected for the second scoping plan update: (i) reduce petroleum use, (ii) increase renewable electricity, (iii) increase building energy efficiency, (iv) reduce short-lived climate pollutants, (v) ensure natural/working lands are carbon sink.
1. Short-lived climate pollutants (SLCPs):
Short-lived climate pollutants remain in the atmosphere for a much shorter period of time than longer-lived climate pollutants, such as carbon dioxide (CO2). However, their relative potency, when measured in terms of how they heat the atmosphere can be much greater than that of CO2 over the short term. SLCPs include three main components: black carbon, methane and fluorinated gases (F-gases).
Senate Bill 605 (Lara), signed by Governor Brown in September 2014, directed the ARB to produce a comprehensive study by January 1, 2016 on short-lived climate pollutants in the state, identifying major sources of emissions as well as policies and strategies to achieve significant and achievable reductions. ARB released a draft of the SLCP Reduction Strategy report for public comment on September 30, 2015. Based on stakeholder feedback as well as further analysis, ARB has proposed targets to reduce emissions of methane and F-gases by 40% below 2013 levels by 2030, and black carbon emissions by 50% below 2013 levels by 2030. ARB staff expect to present the final proposed SLCP Reduction Strategy to the Board for consideration at a public hearing in Spring 2016.
2. Energy efficiency (EE):
Energy used by buildings accounts for approximately 25% of GHG emissions in the state and improving existing buildings is critical to 2030 goals. The Clean Energy and Pollution Reduction Act of 2015 (SB 350) established annual targets for statewide EE savings and demand reduction (DR) to achieve doubling of savings by 2030. AB 802 provides incentives for existing buildings coming up to current code, energy performance benchmarking for large buildings and increased energy usage data access for California Energy Commission (CEC) to improve forecasting capabilities.
Key implementation tools will include continued delivery of validated savings from cost-effective utility EE programs, appliance standards to address rapidly growing plug loads, new Zero Net Energy (ZNE) construction policies and codes & standards (including Green Building Standards codes).
3. Natural and working lands:
· Minimize conversion (Sustainable Agricultural Lands Conservation Program, Forest Legacy Program, Land Use Planning)
· Enhance carbon sequestration potential through management of forest health, wetland restoration, healthy soils initiative and CDFA Fertilizer Research and Education Program.
· Innovate across sectors: Biomass waste diversion (bioenergy, biofuels & compost), Urban greening
4. Electricity:
The Clean Energy and Pollution Reduction Act of 2015 (SB 350) required that the amount of electricity generated and sold to the retail customers per year from eligible renewable energy resources be increased to 50% by 2030 and paves the way for transformation of the California ISO into a regional organization.
5. Transportation and Land Use:
· Vehicle Technology
o Expanded incentives & demonstrations for Light Duty Vehicles (LDVs) and Heavy Duty Vehicles (HDVs) to reduce GHG emissions
o High-speed rail and Zero emission transit vehicles, state and Federal funding
· Fuel Use (Supply/Distribution)
o Large expansion of renewable fuels in-state through market-based mechanisms (Low Carbon Fuel Standard and Cap-and-Trade)
o ISO and PUC policies to foster “vehicle to grid” services
· Land Use (SB 375 implementation and updates to targets in 2016)
· Infrastructure
o Financing tools for transportation infrastructure that reduces emissions
Tentative Scoping Plan Schedule
Date / EventFall 2015 to Mid 2016 / Public workshops in each Focus Area
May 2016 / Discussion draft of Scoping Plan released
June 23, 2016 / First Board Hearing
August 2016 / Public release of draft Scoping Plan with full CEQA and economic analyses
November 2016 / Second Board Hearing
· Stakeholder input: Public workshops (2 weeks notice) with formal & informal comment periods (2 weeks)
· Draft Environmental Analysis will be released for 45 day public comment period
Background on Cap-and-Trade (C&T) Program
The cap-and-trade program is part of the state of California’s compliance with AB 32, the Global Warming Solutions Act of 2006. The Act required CARB to develop regulations and market mechanisms that would cut the state’s greenhouse gas emissions to 1990 levels by 2020—a 25 percent reduction statewide. The Program sets maximum, statewide GHG emissions for all covered sectors each year (the “cap”), and allows covered entities to sell off allowances. An allowance is a tradable permit that allows the emission of one metric ton of CO2e of any GHGs, which are auctioned or allocated to regulated entities on a regular basis (the “trade”).
While California has a clear path through 2020, the state has a long-term goal of reducing global warming pollution 80% below 1990 levels by 2050, per Executive Order S-5-05. California is beginning the process of considering possible next steps for the State’s climate policy beyond the AB32 2020 emission target. 2015 was an important year in this regard, with Governor Brown signing the Executive Order B-30-15 establishing a mid-term GHG reduction target for 2030 and the passage of SB 350. Advocating for extension of C&T via legislative statutes & engaging on C&T post-2020 design will cement CA’s climate leadership and provide both businesses and investors with the long-term policy certainty to help spur even more innovation, investment and job creation.
SB 32, introduced by Senator Pavley in 2015, would require the ARB to determine the best path forward to meet the goal of reducing GHG emissions 80% below 1990 levels by 2050. The bill would also authorize ARB to set interim targets in 2030 and 2040.
Background on CA ISO expansion
The California Independent Systems Operator (CA ISO) is the largest wholesale transmission balancing authority in California and is currently overseen by the Federal Energy Regulatory Commission (FERC) and presides over by a five-member independent Board of Governors appointed by the CA Governor & confirmed by the CA Senate.
Since California’s attempt to restructure its electric industry in the early 2000s, the statutory intent has existed to create a western regional organization for transmission through voluntary adoption of a regional compact or other agreement among participating party states. Such an agreement would require:
· Creation of an equitable process for appointing & confirming members of the governing board
· Modification to the governing board in terms of size, structure, terms of service, etc.
· Mechanism for party oversight of the ISO for reliability and matter that affect retails sales
· Adherence of investor and publicly owned utilities in the party states to enforce standards and protocols to protect the reliability of a regional ISO.
SB 350 restated the legislative intent to provide for a transformation to a regional organization if such a change is in the best interest of California and its ratepayers. The Energy Imbalance Market (EIM) serves as a likely pathway for subsequent regional expansion of the CAISO because transmission owners that join the EIM will sign agreements and make the necessary investments to participate in the CAISO system from a regulatory and operational standpoint (Open Access Transmission Tariff (OATT) modification, metering, telemetry, etc.).
Labor groups are pushing against this expansion in an attempt to only have CA renewables come from California’s geography. This is despite the fact that CA consumers could benefit from lower-cost out-of-state renewables (e.g. Wyoming Wind) and a regional market could create more of a market for California wind and solar power in the middle of the day.