That article has several errors and is misleading in others aspects. First, California’s electricity rates are high because of the renewable contracts signed nearly a decade ago when renewables were just evolving and much higher cost. California’s investment was part of the reason that solar and wind costs are now lower than existing coals plants (new study shows 75% of coal plants are uneconomic) and competitive with natural gas. Batteries that increase renewable operations have almost become cost effective. It also claims that reliability has “gone down” when in fact we still have a large reserve margin. The California Independent System Operator in fact found a 23% reserve margin when the target is only 17%. We also have the ability to install batteries quickly to solve that issue. PG&E is installing over 500 MW of batteries right now to replace a large natural gas plant.
For the rest of the U.S., consumers will benefit from these lower costs today. Californians have paid too much for their power to date, due to mismanagement by PG&E and the other utilities, but elsewhere will be able to avoid these foibles.
Bjorn Lomborg, a Danish political scientist who has pushed for focusing spending on other pressing world needs over reducing climate change risk, has criticized the extension of California’s cap and trade program in the LA Times. I found two serious flaws in Lomborg’s analysis that undermine his conclusions.
The study that Lomberg cites about the electricity market impacts has not been reproduced since such extensive “contract reshuffling” can’t occur in the Western Electricity Coordinating Council (WECC) region or in the CAISO market. That’s just a simplistic modeling exercise not tied to reality. The fact is that thousands of megawatts of coal plants are retiring across the WECC at least in part in response to the cap & trade and renewables portfolio standards (RPS) adopted by California.
And then Lomberg writes “A smarter approach to climate policy — and one befitting California’s role as one of the most innovative states in the country — would be to focus on making green energy cheaper. ” Has Lomberg noticed that new solar and wind installations are now cheaper than new fossil-fueled plants? Contracts are being signed for less than 5 cents per kilowatt-hour–PG&E’s average cost for existing generation is close to 9 cents.
It’s as though Lomberg hasn’t updated his understanding of the energy industry since 2009 when the Copenhagen climate accord was signed.
I believe that California’s passage of the extended cap and trade program was a generally good compromise. Most importantly, it decoupled the cap and trade market from separate legislation to regulate local emission impacts. As I wrote earlier, earlier proposals failed on this aspect.
Here’s the two best analyses I’ve seen so far, one legal and the other economic (by a former Michigan classmate), of the legislation.
The California State Supreme Court refused to rehear a state appellate court decision that upheld the validity of the cap and trade program (CATP) established in Assembly Bill 32 (2006). Those challenging the program claimed that (1) the program required firms to acquire allowances to operate and (2) that the auction receipts were budgeted into state programs like other tax revenues. However, the Court’s decision was a victory for those who believe that stronger property rights can lead to an improved environment.
The AB 32 CATP defined the property rights for individual firms and for the public in allowed GHG emissions into the atmosphere. CARB also allocated allowances for free to these firms and set rates of declining annual emission totals (with some upward adjustments to accommodate interstate and international competitiveness). This is akin to delineating the acreage that a property owner has, and then setting out a rate at which the property owner must dedicate a portion to public use, while still allowing the owner to continue to use that land. The U.S. Supreme Court just upheld the ability of state governments to regulate land use in this manner. The CATP essentially allows an owner to continue to use the land in same manner by acquiring usage rates from other owners who may find it more lucrative to sell their allowances rather than use them. Under AB 32, the state auctions some of those allowances to make for a liquid market, while other allowances are traded bilaterally amongst firms. The bottom line is that CATP established property rights in GHG emissions, just as California established water property rights in 1914.
If the CATP had been declared to be another tax, then any disbursement of government property that generated revenues, e.g., sale of excess office space or forest land, could also be considered a “tax” subject to a two-thirds vote approval by the State Legislature under the state constitution. I doubt that the plaintiffs in this case (led by the Chamber of Commerce) intended that sale of state property would require a two-thirds supermajority vote.
Yet there’s a bigger issue with SB 775: Why are we so focused on getting every last ton of GHG reduction out of California, when instead we should be focused on creating a system that can easily accommodate integrating with other jurisdictions and encourages others to join the effort? What California does alone is absolutely meaningless in changing climate change risk. It requires a truly global effort. Putting up border walls won’t accomplish this.