Meeting Climate, Energy, and Economic Imperatives with Energy Efficiency California’s Policies for Reducing GHG Emissions in the Electric Sector Alliance to Save Energy International Policy Leaders Dialogue September 25, 2008 Jackalyne Pfannenstiel Chairman California Energy Commission

Jackalyne Pfannenstiel

Chairman

California Energy Commission

Governor Schwarzenegger’s Executive Order on GHG Emissions June 1, 2005 CA would reduce Greenhouse Gases to 2000 levels by 2010 1990 levels by 2020 80% below 1990 levels by 2050

CA would reduce Greenhouse Gases to

2000 levels by 2010

1990 levels by 2020

80% below 1990 levels by 2050

AB 32: The Global Warming Solutions Act of 2006

Costs of GHG Strategies McKinsey and Co. Analysis

Sources of GHG Emissions in California 2004

GHG Reductions in Electric Sector AB 32 directed Energy Commission and Public Utilities Commission to recommend to Air Resources Board strategies for reducing GHG emissions in electricity and natural gas sectors Commissions conducted joint proceeding: issued Draft Opinion in September; will adopt Final Opinion in October ARB is final decision-maker

AB 32 directed Energy Commission and Public Utilities Commission to recommend to Air Resources Board strategies for reducing GHG emissions in electricity and natural gas sectors

Commissions conducted joint proceeding: issued Draft Opinion in September; will adopt Final Opinion in October

ARB is final decision-maker

Electric Sector Context Sector accounts for 25% of California’s GHG emissions ARB envisions sector contributing 40% of GHG reductions Imports are 22% of electricity sold; 40-55% of electric sector emissions GHG Emissions

Sector accounts for 25% of California’s GHG emissions

ARB envisions sector contributing 40% of GHG reductions

Imports are 22% of electricity sold; 40-55% of electric sector emissions

Draft Final Opinion from CEC and CPUC Proposed strategies include- Regulatory Mandates Energy Efficiency : All cost-effective energy efficiency Renewable Energy : Expand mandate to 33% Cap and Trade : To provide future reductions Issued for Public Comment 9/12/08

Proposed strategies include-

Regulatory Mandates

Energy Efficiency : All cost-effective energy efficiency

Renewable Energy : Expand mandate to 33%

Cap and Trade : To provide future reductions

All Cost-Effective Energy Efficiency Expand mandatory standards Enhance utility programs Market transformation R&D

Expand mandatory standards

Enhance utility programs

Market transformation

R&D

Energy Efficiency Standards Buildings Continually more stringent Upgrade existing buildings Zero energy new buildings Appliances Technically feasible and cost-effective Home electronics Adopt technological improvements

Buildings

Continually more stringent

Upgrade existing buildings

Zero energy new buildings

Appliances

Technically feasible and cost-effective

Home electronics

Adopt technological improvements

Energy Efficiency Savings GWh 10,000 20,000 30,000 40,000 50,000 1980 1990 2000 2006 Cumulative

Energy Efficiency Results

33% Renewable Energy Renewable Portfolio Standard

Contracts for New RPS Capacity

Barriers to Meeting the RPS Transmission Contracts System integration Environmental issues NIMBY Federal tax credits Cost?

Transmission

Contracts

System integration

Environmental issues

NIMBY

Federal tax credits

Cost?

Other Programs for Renewables California Solar Initiative Goal of 3,000 MW Combine with EE Declining incentives New and existing buildings Homes and businesses Currently about 400 MW Utility Investments Rate-based installations Leased roof space Power back to grid Goals SCE - 250 MW SDG&E - 80MW

California Solar Initiative

Goal of 3,000 MW

Combine with EE

Declining incentives

New and existing buildings

Homes and businesses

Currently about 400 MW

Utility Investments

Rate-based installations

Leased roof space

Power back to grid

Goals

SCE - 250 MW

SDG&E - 80MW

Cap-and-Trade Program Initially, 80% allowances distributed administratively, 20% auctioned; by 2016, 100% auction Free allowances To “deliverers” Based on energy output, weighted by fuel source If emitters reduce carbon content of power, can sell allowances Auction Allowances to retail providers on behalf of customers Independent, centralized auction required Allocations initially based on historical emissions; later, sales-based

Initially, 80% allowances distributed administratively, 20% auctioned; by 2016, 100% auction

Free allowances

To “deliverers”

Based on energy output, weighted by fuel source

If emitters reduce carbon content of power, can sell allowances

Auction

Allowances to retail providers on behalf of customers

Independent, centralized auction required

Allocations initially based on historical emissions; later, sales-based

Allowance Allocation Summary Free Allocation Auction Allocations 2012 80% 20% 2016 0 100% Allowances Granted to: Deliverers (Generators) Retail Providers (Utilities) Number Based on: 2012 Output + Fuel Source Historical Emissions 2020 NA Sales

Auction Revenue All auction revenues for purposes of AB 32 Retail providers must use revenue for Efficiency Renewable energy New energy technology Infrastructure Low-income customers ARB may retain small portion of allowances for statewide energy sector programs

All auction revenues for purposes of AB 32

Retail providers must use revenue for

Efficiency

Renewable energy

New energy technology

Infrastructure

Low-income customers

ARB may retain small portion of allowances for statewide energy sector programs

C&T Design Features Open, transparent trading with many participants Multi-sector, regional cap-and-trade market No restrictions on market participation Links to other equally-stringent cap-and-trade programs Significant non-compliance penalties No safety valves or price triggers Offsets must be real, additional, verifiable,enforceable, permanent, certified by third parties

Open, transparent trading with many participants

Multi-sector, regional cap-and-trade market

No restrictions on market participation

Links to other equally-stringent cap-and-trade programs

Significant non-compliance penalties

No safety valves or price triggers

Offsets must be real, additional, verifiable,enforceable, permanent, certified by third parties

Conclusions California’s GHG program for the electric sector will likely include Energy efficiency Renewable resources Cap-and-trade Aggressive efficiency and renewables programs can reduce emissions to 1990 levels Cap-and-trade can provide opportunities for further reductions

California’s GHG program for the electric sector will likely include

Energy efficiency

Renewable resources

Cap-and-trade

Aggressive efficiency and renewables programs can reduce emissions to 1990 levels

Cap-and-trade can provide opportunities for further reductions