CALIFORNIA S SUSTAINABLE ENERGY POLICIES PROVIDE A MODEL FOR THE NATION Audrey Chang November 2006

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1 NATURAL RESOURCES DEFENSE COUNCIL CALIFORNIA S SUSTAINABLE ENERGY POLICIES PROVIDE A MODEL FOR THE NATION Audrey Chang Nvember 2006 Califrnia has lng been at the vanguard f innvative energy plicy. Tday, the Glden State cntinues t establish pineering energy Per Capita Carbn Dixide Emissins plicies that address pressing 25.0 envirnmental cncerns while strengthening the sixth largest ecnmy in the wrld. 1 Califrnia has reduced its per-capita cntributins t glbal warming and bsted its ecnmy by fcusing plicies n its energy prductin and transprtatin sectrs, which tgether accunt fr 92% f the state s carbn dixide (CO 2 ) emissins. 2 CO 2 emissins per capita in Califrnia have decreased by 30% since 1975 (when Califrnia s efficiency effrts first began in earnest), while U.S. per capita CO 2 emissins have remained essentially level. 3 Califrnia State Plicy Establishes Sustainable Energy as a Pririty Per Capita Emissins (metric tns) Rest f U.S. Califrnia Califrnia with imprts Surce: Oak Ridge Natinal Labratry, 2004.! In September 2006, Gvernr Schwarzenegger signed int law the landmark Glbal Warming Slutins Act f 2006, making Califrnia the first state in the natin t cap its statewide greenhuse gas (GHG) emissins. The bill establishes firm timetables and enfrcement authrities fr reducing the state s GHG emissins t 1990 levels by 2020, guidelines fr plicies t meet the limit, and authrizes use f flexible market-based mechanisms. 5! Als in September 2006, the gvernr als signed a law establishing a GHG perfrmance standard fr pwer plants serving the state s custmers. All new r renewed lng-term financial cmmitments t baselad pwer must cme frm plants that have GHG emissins per megawatt- hur generated n higher than thse f a cmbined-cycle natural gas plant. 6! The Energy Actin Plan, adpted by the state s energy agencies and endrsed by the gvernr, establishes a lading rder f preferred energy resurces, placing energy efficiency as the state s tp pririty prcurement resurce, fllwed by renewable energy generatin. 7! In December 2004, Gvernr Schwarzenegger issued a green buildings Executive Order, requiring that all new and renvated state buildings achieve envirnmental ratings f LEED (Leadership in Energy and Envirnmental Design Green Building Rating System ) Silver r higher, setting a gal fr all state buildings t be 20% mre efficient by 2015, and encuraging 8 the private sectr t d the same Sutter Street, 20 th Flr NEW YORK " WASHINGTON, DC " LOS ANGELES San Francisc, CA TEL FAX

2 Energy Efficiency is a Prven and Cst-Effective Resurce fr Califrnia s Utilities! Califrnia s investments in energy efficiency prgrams and imprvements in building and appliance efficiency standards ver the past 30 years have: Enabled Califrnia t hld per capita electricity use essentially cnstant, while the rest f the natin has seen per capita electricity use increase by nearly 50%. 9 Cmparisn f Per Capita Electricity Cnsumptin in U.S. and Califrnia 14,000 12,000 10,000 U.S. kwh 8,000 6,000 Califrnia 4,000 2, Surce: Califrnia Energy Cmmissin, Saved mre than 12,000 MW f peak demand (equivalent t aviding 24 giant pwer plants), and abut 40,000 GWh each year (equivalent t 15% f Califrnia s annual energy cnsumptin). 11 Increased Califrnia s inflatin-adjusted ecnmic utput per unit f electricity cnsumed by ver 40% (while the rest f the natin increased by nly 8%), demnstrating that ecnmic grwth need nt be accmpanied by prprtinal increases in pwer cnsumptin. 12 Annual Energy Savings frm Efficiency Prgrams and Standards 45,000 ~ 15% f Annual Electricity Use in Califrnia in ,000 35,000 30,000 GWh/year 25,000 20,000 15,000 10,000 5,000 Utility Efficiency Prgrams Building Standards Appliance Standards Surce: Califrnia Energy Cmmissin,

3 ! The cst f efficiency prgrams ver their lifetime has averaged 2-3 per kwh, less than half the cst f the avided generatin. 14 Over the last decade alne, these efficiency prgrams have prvided mre than $5.3 billin in net benefits t Califrnia s ecnmy. 15! Energy efficiency and cnservatin played a crucial rle in calming the energy crisis in Califrnians avided blackuts by cutting demand in summer 2001 by mre than 5,500 MW, a decrease in peak demand f mre than 10% when adjusted fr ecnmic grwth and weather cnditins.! Califrnia law nw requires the state s investr-wned utilities t use mdest regular adjustments in electric and gas rates t break the link between the utilities financial health and the amunt f electricity and natural gas sld. 16 This remves significant regulatry barriers t utility investments in cst-effective energy efficiency imprvements and helps align the interests f utilities and custmers. Califrnia Cntinues t Lead the Natin in Energy Efficiency! In January 2006, Califrnia utilities kicked ff the mst aggressive energy efficiency prgram in the cuntry, which w ill prvide $2 billin in funding ver the next three years. This investment will return nearly $3 billin in net benefits t Califrnia s ecnmy, avert the need every year t build a new giant pwer plant, and avid ver 3 millin tns f CO 2 emissins, equivalent t remving 650,000 cars frm the rads. 17! Califrnia s mst recently adpted energy efficiency standards fr buildings and appliances are expected t save 2,800 MW and avid the need fr 5 giant pwer plants in the next 10 years. 18 These standards are regularly revised, ensuring that Califrnia s buildings and appliances will remain the mst energy efficient in the natin. 19! In September 2004, Califrnia regulatrs set the natin s mst aggressive energy savings gals, which will mre than duble the current level f savings ver the next decade. 20 The utilities are expected t invest nearly $6 billin ver that perid t reach these aggressive targets, which will: 21 Avid the need t build 10 giant pwer plants (by saving nearly 5,000 MW). While ther states energy efficiency effrts deliver annual savings ranging frm abut 0.1% t 0.8% f their annual electricity use, 22 the new targets will establish Califrnia as the undisputed energy efficiency leader, with annual electricity savings that will exceed 1% f ttal annual lad by Prvide custmers relief frm rising natural gas bills by tripling annual gas savings by the end f the decade (saving 444 millin therms per year by 2013, equivalent t the cnsumptin f ne millin husehlds). Reduce CO 2 emissins by an estimated 11 millin tns per year by 2013, equivalent t taking ver tw millin cars and trucks ff the rad. Prvide abut $10 billin in net benefits t the state s cnsumers ver the next decade.! In January 2005, regulatrs adpted a new energy efficiency administrative structure, which fully integrates energy efficiency int resurce prcurement fr the state s regulated utilities. 23 Utilities are nw required t invest in energy efficiency whenever it is cheaper than building new pwer plants. The savings achieved thrugh these energy efficiency prgrams will be subject t rigrus independent verificatin.! Utili ties prvide energy efficiency services and rate assistance t lw-incme custmers. Since May 2001, regulatrs have set a gal f reaching 100% f lw-incme custmers wh want t participate. T this end, the state s regulated utilities have prvided energy efficiency services t 845,855 lw-incme husehlds between 2001 and

4 ! Califrnia law nw als requires municipal utilities (which accunt fr rughly a quarter f statewide electricity sales) t set t set ten-year energy saving targets t achieve all cst-effective efficiency, ensures that these resurces will be accmmdated fully in utilities resurce prcurement budgets, and greatly enhances accuntability thrugh versight and independent energy-efficiency prgram evaluatins. 25 Califrnia s Cmmitment t Renewable Energy! Califrnia already has mre renewable electricity generatin capacity than any ther state, 26 and this amunt will duble in the next ten years. 27 Currently, renewable resurces (such as wind, slar, gethermal, bimass, and small hydrelectric plants) prvide 10.7% f Califrnia s electrical energy, 28 cmpared t 2.3% fr the natin. 29! Califrnia s Renewable Prtfli Standard, enacted in 2002, and accelerated in 2006, requires the state s largest utilities t buy r prduce 20% f their pwer frm renewable energy surces by Gvernr Schwarzenegger and the Califrnia Energy Cmmissin have recmmended extending this renewable energy target t 33% by ! In January 2006, Califrnia launched the Califrnia Slar Initiative, the largest slar prgram in the cuntry. The Initiative, which prvides $2.9 billin in incentives ver 10 years, aims t increase the amunt f installed rftp slar capacity in the state by 3,000 MW by Califrnia law ges ne step further by ensuring hmes with excess pwer can sell it t the grid, and mandating that slar pwer be an ptin n many new hmes. 33 Califrnia Prtects Utility Custmers frm the Risks f Glbal Warming! The state s regulated utilities are required t assign a dllar cst t greenhuse gas emissins, reflecting their assciated financial risk, in lng-term planning and prcurement in rder t select the verall least cst resurces. The Califrnia Public Utilities Cmmissin (CPUC) decided in April 2005 that the leading glbal warming pllutant, carbn dixide, shuld be assigned a cst f 34 $8 per tn, escalated at 5% per year, fr these purpses.! Lng-term investments in cnventinal cal-burning pwer plants, which emit twice as much CO as natural-gas fired plants, present the mst serius financial risk in the face f ptential carbn regulatin; n the ther hand, renewable resurces and energy efficiency emit little r n CO 2. The CPUC s new plicy creates an additinal incentive fr utilities t invest in cleaner energy resurces.! In February 2006, the CPUC annunced its intent t establish a lad-based cap n GHG emissins fr the state s utilities and lad-serving entities. Implementatin details will be wrked ut in clse crdinatin with statewide effrts t meet Califrnia s GHG reductin gals. 35 The lad-based cap will encmpass imprted electricity, respnsible fr ver 50% f the GHG emissins assciated with electricity cnsumptin Califrnia Minimizes Glbal Warming Pllutin frm the Transprtatin Sectr! Califrnia is the first state in the natin t regulate mtr vehicle greenhuse gas emissins. With a new standard taking effect in January 2006, new passenger cars and light trucks beginning with 37 mdel year 2009 will be required t have lwer tailpipe emissins f CO 2 and ther pllutants. The standard is expected t reduce GHG emissins frm new passenger vehicles by apprximately 30% by ! Under a 2003 law, the state will implement a replacement tire efficiency prgram t ensure that by 2008 replacement tires sld in Califrnia are, n average, as fuel efficient as the riginal tires f 39 new vehicles sld in the state. Withut sacrificing safety, this law is prjected t reduce Califrnia gasline cnsumptin by cars and light trucks by 3% by 2015, 40 saving in that year alne ver 545 millin gallns f gasline, ver $1 billin in fuel csts, and 4.8 millin tns f CO

5 Endntes fr Califrnia s Sustainable Energy Plicies 1 Legislative Analyst s Office, Cal Facts 2004: Califrnia s Ecnmy and Budget in Perspective, December 2004, p. 7. A vailable nline at 2 When taking int accunt the emissin frm electricity imprted int the state, the transprtatin sectr accunts fr 48% f Califrnia s CO2 emissins, and the natural gas and electricity sectrs accunt fr 46%. Calculated frm data in: Califrnia Energ y Cmmissin, Inventry f Califrnia Greenhuse Gas Emissins and Sinks: , Publicatin # F, Nvember Oak Ridge Natinal Labratry; data cmpiled frm: Blasing, T.J., C.T. Brniak, and G. Marland, Estimates f Annual Fssil- Fuel CO2 Emitted fr Each State in the U.S.A. and the District f Clumbia fr Each Year frm 1960 thrugh 2001, 2004 In Trends: A Cmpendium f Data n Glbal Change, Carbn Dixide Infrmatin Analysis Center, Oak Ridge Natinal Labratry, U.S. Department f Energy. Availabl e nline at cdiac.esd.rnl.gv/trends/emis_mn/stateemis/emis_state.htm. 4 Oak Ridge Natinal Labratry; data cmpiled frm: Blasing, T.J., C.T. Brniak, and G. Marland, Estimates f Annual Fssil- Fuel CO2 Emitted fr Each State in the U.S.A. and the District f Clumbia fr Each Year frm 1960 thrugh 2001, In Trends: A Cmpendium f Data n Glbal Change, Carbn Dixide Infrmatin Analysis Center, Oak Ridge Natinal Labratry, U.S. Department f Energy. Available nline at cdiac.esd.rnl.gv/trends/emis_mn/stateemis/emis_state.htm. 5 Assembly Bill 32 (Nunez & Pavley, 2006). 6 Senate Bill 1368 (Perata, 2006). 7 Califrnia Cnsumer Pwer and Cnservatin Financing Authrity (CPA), Califrnia Energy Resurces Cnservatin and Develpment Cmmissin (CEC), and Califrnia Public Utilities Cmmissin (CPUC), Energy Actin Plan, Adpted May 8, 2003 by CPUC; April 30, 2003 by CEC; and April 18, 2003 by CPA. Available nline at Letter frm Gvernr Schwarzenegger t CPUC President Peevey, April 28, Executive Order S-20-04, December 14, Xenergy Inc., Califrnia s Secret Energy Surplus: The Ptential fr Energy Efficiency, September 23, 2002, p. A Jhn Wilsn, Califrnia Energy Cmmissin, Nvember Califrnia Energy Cmmissin, Implementing Califrnia s Lading Order fr Electricity Resurces, Staff Reprt, Publicatin CEC , July 2005, p. E D. Bachrach, M. Ardeman, and A. Leupp, Energy Efficiency Leadership in Califrnia: Preventing the Next Crisis. April 2003, p Califrnia Energy Cmmissin, Implementing Califrnia s Lading Order fr Electricity Resurces, Staff Reprt, Publicatin CEC , July 2005, Figure E-1, p. E The cst ver the lifetime f energy efficiency initiatives undertaken during 2001 will be an average f 3 /kwh (Glbal Energy Partners, Califrnia Summary Study f 2001, fr the Califrnia Measurement Advisry Cuncil (CALMAC), Reprt ID# , March 2003.) The average cst f saved energy f PGC funded efficiency frm was abut 2.5 /kwh (Sheryl Carter, Investments in the Public Interest: Califrnia s Public Benefit Prgrams under Assembly Bill 1890, Natural Resurces Defense Cuncil, January 2000) IOU energy efficiency prgrams yielded $1.4 billin in net benefits (Califrnia Public Utilities Cmmissin, Decisin , Interim Opinin n Whether t Repen the Shared-Shavings Incentive Mechanism Adpted in Decisin fr Energy Efficiency Prgrams, Finding f Fact 9, Octber 16, 2003, p. 36) electricity efficiency prgrams yielded $3.9 billin in net benefits (Pacific Gas and Electric Cmpany, Suthern Califrnia Edisn, San Dieg Gas & Electric, and Suthern Califrnia Gas, Energy Efficiency Annual Reprts, May ). 16 Califrnia Public Utilities Cde Sectin states: The cmmissin shall ensure that errrs in estimates f demand elasticity r sales d nt result in material ver r undercllectins f the electrical crpratins. 17 Califrnia Public Utilities Cmmissin, Decisin , Interim Opinin: Energy Efficiency Prtfli Plans and Prgram Funding Levels fr Phase 1 Issues, September 22, Title 24 building standards will save 180 MW/year (Califrnia Energy Cmmissin, Energy Cmmissin Apprves New Building Standards t Help the State Cut Energy Use, Press Release, Nvember 5, 2003), and Title 20 appliance standards will save 100 MW/year (Califrnia Energy Cmmissin, Energy Cmmissin Apprves New Energy-Saving Rules fr Appliances, Press Release, December 15, 2004). 19 Title 24 is revised n a three-year cycle, and the next update will be in Title 20 is revised apprximately every three years. 5

6 20 Califrnia Public Utilities Cmmissin, Decisin , Interim Opinin: Energy Savings Gals fr Prgram Year 2006 and Beynd, September 23, Calculated frm targets in CPUC Decisin , September 23, 2004 and CEC, Califrnia Energy Demand Staff Energy Demand Frecast, Publicatin #CEC SF-ED2, September Kushler, M., D. Yrk, and P. Witee, Five Years In: An Examinatin f the First Half-Decade f Public Benefits Energy Efficiency Plicies, April 2004, p. vi. 23 Califrnia Public Utilities Cmmissin, Decisin , Interim Opinin n the Administrative Structure fr Energy Efficiency: Threshld Issues, January 27, Risser, Rland, Califrnia Utility Lw Incme Energy Efficiency Prgrams, Presentatin given at the Lw Incme Energy Efficiency Sympsium, Ls Angeles, June 8, Assembly Bill 2021 (Levine, 2006) requires municipal utilities t treat investments in energy efficiency as prcurement investments and requires municipal utilities t set annual efficiency targets. Municipal utilities represent abut a quarter f Califrnia s energy use. Califrnia Energy Cmmissin Electricity Analysis Office, Califrnia 2003 Electricity Cnsumptin By Utility Type, 26 Energy Infrmatin Administratin, Renewable Energy Trends 2003, with Preliminary Data fr 2003, July 2004, p Based n estimated amunt f renewable energy needed t meet RPS (20% by 2010), Califrnia Energy Cmmissin, Public Interest Energy Strategies Reprt, Publicatin F, December 2003, p. 96, Table Califrnia Energy Cmmissin, Califrnia Grss System Pwer Fr 2005, 29 Energy Infrmatin Administratin, Electric Pwer Annual fr 2005, 30 Senate Bill 107 (Simitian, 2006). 31 Califrnia Energy Cmmissin, Integrated Energy Plicy Reprt: 2004 Update, Nvember 2004, p Califrnia Public Utilities Cmmissin, Decisin , Interim Order Adpting Plicies and Funding fr the Califrnia Slar Initiative, January 12, Senate Bill 1 (Murray, 2006): applies the Califrnia Slar Initiative t bth investr and publicly wned utilities, raises the net metering cap fr all utilities frm 0.5% t 2.5% f generatin capacity, and requires that develpers f mre than 50 single family hmes ffer slar pwer as an ptin. 34 Califrnia Public Utilities Cmmissin, Decisin , Interim Opinin n E3 Avided Cst Methdlgy, April 7, 2005, Cnclusin f Law Califrnia Public Utilities Cmmissin, Decisin , Opinin n Prcurement Incentives Framewrk, February 16, Califrnia Energy Cmmissin, Inventry f Califrnia Greenhuse Gas Emissins and Sinks: 1990 t 2002 Update, Staff Paper, Publicatin CEC , June 2005, p AB 1493 (Pavley, 2002) directed CARB t establish mtr vehicle standards t limit GHG emissins frm passenger cars and light trucks. CARB unanimusly apprved their standards in September As cmpared t business as usual. Califrnia Envirnmental Prtectin Agency Air Resurces Bard, Staff Reprt: Initial Statement f Reasns fr Prpsed Rulemaking, Public Hearing t Cnsider Adptin f Regulatins t Cntrl Greenhuse Gas Emissins frm Mtr Vehicles, August 6, 2004, p AB 844 (Natin, 2003). 40 With the prgram starting in 2008, it is assumed that by 2015 all light-duty replacement tires will be fuel-efficient tires. The fuel-efficient replacement tires increase the fuel ecnmy f vehicles using them by 4%. This translates int a 3% decrease in fuel cnsumptin frm all light-duty vehicles, since abut 75% f light-duty vehicles use replacement tires. The range f fuel ecnmy benefits frm fuel-efficient replacement tires is prvided in a cnsultant reprt t the Califrnia Energy Cmmissin: Califrnia State Fuel-Efficient Tire Reprt: Vlume II, Cnsultant Reprt CR Vl. II, January NRDC calculatin using a gasline price f $2/gal and a 2015 gasline demand f 18,200 millin gallns frm Califrnia Energy Cmmissin, Integrated Energy Plicy Reprt Subsidiary Vlume: Transprtatin Fuels, Technlgies, and Infrastructure Assessment Reprt, Cmmissin Reprt F, December Fuel cst savings are grss savings. 6