The Greenhouse Dilemma 

Governor Schwarzenegger's plan to reduce greenhouse gases could fail to reach its goals — or it could expand the use of coal power in California.

When Governor Arnold Schwarzenegger signed an executive order last week to significantly reduce greenhouse gas emissions, he made national headlines and received widespread praise. MSNBC, the left-leaning cable news alternative to Fox, touted the governor's decision on its web site under the title, "California Gets Strongest Clean Energy Rules." But a closer examination of Schwarzenegger's order reveals that the hype surrounding it may have been overblown.

The first potential problem with the governor's decision is that it could prove vulnerable in the courts because he acted unilaterally, as opposed to signing legislation approved by state lawmakers. Supporters of two Democrat-sponsored green-energy bills that Schwarzenegger said he plans to veto are worried that Southern California Edison, the huge utility that serves Los Angeles, may ultimately sue to overturn the governor's order. This summer, Southern California Edison strongly opposed Democratic efforts to turn California into a green-tech economy, and it could now turn its sights on the governor's order.

The utility could successfully argue that current law requires it to obtain no more than 20 percent of its energy from renewable sources by the end of next year, and that Schwarzenegger's order to increase that requirement to 33 percent by 2020 is invalid because an executive order doesn't carry the same weight as existing law. "His plan has no force of law," explained Matthew Freedman, a staff attorney for the Utility Reform Network, a San Francisco-based consumer advocacy group.

Schwarzenegger's order also can be easily rescinded by the next governor. That probably won't happen if Jerry Brown or Gavin Newsom wins next year's election, but it's entirely possible if California gets another Republican governor. In fact, GOP front-runner Meg Whitman wrote in an op-ed piece last week in the San Jose Mercury News that if elected she would sign an executive order blocking the implementation of greenhouse-gas reduction rules. The former eBay CEO claims the landmark environmental regulations, which stem from a 2006 law and are set to take effect early next year, "will discourage job creation and could kill any recovery."

The second problem with Schwarzenegger's decision is that it could perversely lead to a resurgence of California's dependence on coal power, one of the worst contributors to greenhouse gases. The reason has to do with the governor's desire to allow state utilities to expand their complicated energy transactions with out-of-state power producers, including those who use coal. "It's safe to say that the governor's plan," said Laura Wisland, a Berkeley energy analyst for the Union of Concerned Scientists, "could prolong the life of coal plants that would otherwise be retired."

Wisland explained that under current California law it is illegal for state utilities to enter into long-term energy contracts with coal-power companies. But there is one major loophole. Utilities can buy coal power in complicated transactions that include the use of "renewable energy credits." For example, San Diego Gas & Electric currently buys renewable energy credits from a Montana wind farm. However, the utility doesn't actually obtain the wind-power energy, because there is no way to effectively transmit it all the way to Southern California. So it buys the energy and then sells it back to the wind farm at the same price, Freedman explained.

But the utility uses the "renewable-energy credits" it also buys in the transaction. The utility purchases energy from an Arizona producer that depends on coal power, and then gets to call it "renewable" because of the Montana wind-farm credits, Freedman explained. The principle is similar to the "cap-and-trade" emissions-trading system supported by President Obama.

Some environmentalists are concerned that Schwarzenegger's order will lead to a substantial increase in such transactions. The governor has expressed a strong desire to allow utilities to meet their entire 33 percent mandate by purchasing out-of-state credits for renewable energy that never actually makes it to California.

Supporters of the governor's position, however, say none of that really matters. The reason is that when California utilities buy out-of-state credits from wind or solar farms, they're also spurring the growth of renewable energy throughout North America. Even if California never uses the wind energy, someone else will, thereby reducing the overall proliferation of fossil fuels. The Montana wind farm, for example, sells the energy it "buys" back from San Diego to Alberta, Canada. And so, from a global-warming perspective, it doesn't matter whether California, Montana, or Canada uses the green energy, because the ultimate goal is to limit global greenhouse-gas emissions.

Still, the governor's plan could prolong the life of coal-powered plants because coal power is cheap and because utilities will be able to effectively buy it with their credits. (Utilities also like fossil-fuel power because it's more reliable than wind and solar energy, which are produced only when the wind blows and the sun shines.) Moreover, if California's electricity needs increase with the widespread use of electric and plug-in vehicles, then the state's demand for out-of-state power could extend the life of coal-powered plants even longer. It's highly unlikely that new coal plants will be built to fulfill the state's needs because they're too costly to construct.

Schwarzenegger's move also could reduce the amount of money that will end up being dedicated to the creation of a California green-tech economy. That's another reason why Democrats proposed limiting transactions like the San Diego-Montana-Arizona deal. The Democratic bills passed by both houses of the legislature earlier this month would limit the purchase of out-of-state green energy credits to one-quarter of the 33 percent mandate. This limitation would force utilities to purchase more green energy from homegrown producers, or from neighboring states that could actually transmit it to California.

Not surprisingly, some California green-energy companies strongly supported the Democratic bills. Backers included Oakland-based BrightSource, a solar company that recently announced that it's building several installation in the Mojave Desert. The Democratic bills would guarantee greater demand for more such projects in the future.

So what needs to happen? Clearly, it would be better if Democrats and environmentalists went back to the bargaining table and reached a compromise with the governor. Legislation signed into law is much less vulnerable to an adverse court ruling or to the whims of a future Republican governor.

One possible compromise would be to limit the amount of coal power that utilities can effectively purchase with out-of-state credits. Another would be to find a middle ground between the unlimited credits that the governor proposes and the 25 percent maximum proposed by Democrats. Something in the neighborhood of 50 percent to 60 percent could provide the flexibility that the governor wants utilities to have while also providing the necessary pressure to close those old coal plants and help the state build a green economy.


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