1) The document discusses California's policies for reducing greenhouse gas emissions from the electric sector, including Governor Schwarzenegger's executive order setting emissions reduction targets. 2) It outlines strategies proposed by the California Energy Commission and Public Utilities Commission, including increasing energy efficiency, requiring 33% renewable energy, and implementing a cap-and-trade program. 3) The cap-and-trade program would initially distribute most allowances freely based on fuel sources and output, but transition to auctioning all allowances by 2016, with revenues funding further efficiency, renewables and technology.

1. 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

2. 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

3. AB 32: The Global Warming Solutions Act of 2006

4. Costs of GHG Strategies McKinsey and Co. Analysis

5. Sources of GHG Emissions in California 2004

6. 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

7. 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

8. 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

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

10. 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

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

12. Energy Efficiency Results

13. 33% Renewable Energy Renewable Portfolio Standard

14. Contracts for New RPS Capacity

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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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