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California and Quebec are forging the first “link” in what could become a chain of sub-national governments partnering to tackle climate change.  Pending final approval by the California Air Resources Board (CARB) next month, large carbon polluters in California and Quebec will be able to use allowances and offsets issued by either government to meet their obligations under cap-and-trade programs that begin in January 2013. 

This process – known as linkage – is an encouraging step amidst disappointing news that Canada will withdraw from the Kyoto Protocol and the continued failure of the U.S. Congress to take meaningful action on climate change.  California and Quebec have spent the last few months working out the mechanics of linkage and closely reviewing one another’s cap-and-trade regulations.  In addition to accepting interchangeable allowances and offsets, California and Quebec will hold joint quarterly auctions for allowances and will share a single allowance tracking system that is carefully designed to maintain the integrity and security of the market. The auctions will be a historic step in establishing a price on carbon pollution, and will be a platform on which other jurisdictions can join. Other Canadian provinces, including Ontario, Manitoba and British Columbia, are actively working to develop and implement programs. 

The California Air Resources Board released their staff report yesterday that details California’s reasons for linking with Quebec, including the likelihood that the larger market will generate new capital flow into California for energy efficiency and clean energy technologies that cut pollution.  Economic modeling shows that it is more likely that on-site reductions will occur in California than in Quebec, creating job opportunities that might include energy efficiency audits at cement plants or installing solar panels on universities.  An increase in on-site reductions also creates public health and air quality benefits, as local air pollutants are reduced along with greenhouse gases. 

Showing that two separate governments, in two separate countries, with two separate economies, can effectively partner to put a price on carbon is a transformative step for North America.  California and Quebec would join 27 European countries – along with Australia, New Zealand, and South Korea – in showing the world how effective cap-and-trade can be.

The California Public Utilities Commission (CPUC) recently released a Proposed Decision that included rulings on energy efficiency financing.  One ruling directs the state’s three largest utilities–PG&E, Southern California Edison and San Diego Gas & Electric–to develop an On-Bill Repayment (OBR) program for commercial properties that is based on a proposal developed by Environmental Defense Fund (EDF).

The Proposed Decision notes that the agency lacks the full necessary legal authority to implement an OBR program for residential customers. To address that, EDF is sponsoring legislation introduced by California Senator Kevin de Leon that would provide the CPUC with the necessary authority.

Senator de Leon and EDF have been working together to assemble a broad coalition of supporters including labor, contractors, building owners, banks and other investors, solar installers, energy efficiency project developers, environmental advocacy and environmental justice groups. 

We are excited to report that yesterday the bill passed the California Senate’s Energy, Utilities and Communications Committee. While we have a long way to go, this is another key step toward establishing a program that can invest billions of dollars of private capital in energy efficiency and renewable energy projects in California at no cost to taxpayers or ratepayers.

EDF will continue working with a broad range of stakeholders to successfully create the nation’s first statewide OBR program that is entirely financed by third parties. This landmark approach will enable project developers and building owners to use both conventional and innovative financing options to invest in energy efficiency and renewable energy projects.   

The CPUC is expected to vote on its proposed decision on May 10, 2012. The bill will continue being heard and voted on over the coming months. Once the final votes are in, California aims to have the commercial OBR program up and running by January 2013.

Late yesterday, a three-judge panel in the 9^th Circuit Court of Appeals granted an important stay motion in favor of California and its Low Carbon Fuel Standard (LCFS). The court’s decision allows the state to move forward with vital protections for human health and the environment that will strengthen California’s clean energy economy and improve our energy security.

The LCFS is one of California’s most ambitious and innovative climate change regulations to date. It is among 70 measures adopted under AB 32 (the Global Warming Solutions Act of 2006) that will be used to reduce emissions to 1990 levels by 2020. The standard calls for reducing the carbon content of fuels by 10 percent by 2020, which is expected to reduce 15 million metric tons of greenhouse gas pollution per year by 2020. Some of the cuts will come from improvements in the way traditional oil and ethanol feedstocks are produced, processed and delivered to consumers. Other cuts will come from advancements in breakthrough technologies such as electric cars and renewable fuels that dramatically cut toxic air contaminants and further diversify our fuel supply with locally generated energy sources.

How LCFS Works

The standard creates a flexible system that allows fuel suppliers to comply by either documenting reduced emissions in their fuel production pathways (using a science-based lifecycle emissions model) or by purchasing credits from suppliers that have reduced emissions below a predetermined threshold. This approach rewards innovative solutions that cut emissions as quickly, cheaply and extensively as possible, using a scientifically credible emissions reporting and trading platform.

How LCFS Provides Energy Security and Protection from Fuel Price Surges 

California drivers burn about 16 billion gallons of gasoline and 4 billion gallons of diesel fuel every year and emit, in aggregate, approximately 170 million tons of greenhouse gas emissions. Much of this fuel is sourced from California oil fields (approximately 200 million barrels per year), though more than 50 percent is imported from the Middle East, South America and Alaska. These imports make our economy vulnerable to price swings and shortages driven by production changes and politics.

We blogged yesterday about the latest Next 10 report that analyzes the economic impacts of policies designed to help California reduce its climate pollution. It notes California’s record-breaking pace on clean energy funding and innovation, while reducing pollution and growing its economy. Since 1990, California’s gross domestic product (GDP) expanded 16 percent while carbon emissions per capita fell.

Today, a new report released by Environment America finds that the 10 Northeastern states in the Regional Greenhouse Gas Initiative (RGGI) have seen similar results. The states cut per capita carbon emissions 20 percent faster than the rest of the nation from 2000-2009 while regional per capital GDP grew 87 percent faster.

Add this good news to the findings of a report released last November—which estimated that investments made by RGGI states in its first three years of operation added economic value worth more than $1.6 billion (nearly $33 per person) and 16,000 jobs—and you have further proof that strong environmental policies deliver economic benefits to states that lead on climate change. That is worth celebrating on Earth Day.

California continues setting the pace in the clean economy and is reaping tangible economic and environmental benefits from doing so. These are two of the key takeaways from a report released today by Next 10, which found that clean technology is fueling the state’s economic rebound and driving its efforts to cut climate pollution.

The 2012 California Green Innovation Index compiled by Collaborative Economics is the fourth annual report that tracks the “economic impacts of policies that help reduce state carbon emissions.” California’s Global Warming Solutions Act (AB 32) was among the policies cited as helping to drive the state’s economic growth.

According to the report, clean tech investments in California rose 24% between 2010 and 2011 to $3.5 billion. This represents 57% of all the venture capital (VC) funding in the country and 40% in the world. Additionally, California clean tech companies filed the most patents: 910 between 2008 and 2010. New York came in a distant second with companies filing 475.

Our solar industry did exceptionally well, attracting $1.2 billion, 62% of all U.S. VC funding in 2011. In part because of this investment, the Golden State reached a major milestone by installing 1,000 megawatts of solar capacity. Only five other countries in the world have hit this mark. Between January 1995 and January 2010, 1,503 solar businesses were founded here, an increase of 171%.

While this economic news is impressive, equally important were findings related to the environmental benefit: climate pollution fell even as the state's population was rapidly expanding. By 2009, for every dollar of gross domestic product (GDP), California was producing 28% less carbon emissions than it did in 1990. These reductions happened as the population grew by 8 million residents. Specifically, since 1990, California’s per capita GDP expanded 16% while carbon emissions per capita fell. This is particularly encouraging as California prepares to launch a carbon market that will limit overall pollution in the state to 1990 levels by 2020.

This latest report further demonstrates that environmental policies lead to economic growth. We wholeheartedly agree with Doug Henton, CEO of Collaborative Economics, who said that by “setting the market rather than chasing it,” California’s leadership is “paying off in the form of investment, innovation, and growth.”

After hearing that his obituary was published in the New York Journal, Mark Twain was quoted as saying, “The reports of my death are greatly exaggerated.” 

A similar retort applies to media coverage of a recently released report that questioned the effectiveness of cap-and-trade policy, since the study actually found that federal programs to control sulfur oxides (SOx) and nitrogen oxides (NOx) achieved goals at lower than expected costs. 

In the study, Lawrence Berkeley National Lab (LBNL) researcher Margaret Taylor found that greenhouse gas cap-and-trade programs do not necessarily induce the private sector to develop patents for innovative technologies to address climate change.  

Unfortunately for the study, the finding has been woefully misinterpreted and seized upon by those looking to undermine California’s plan to use cap-and-trade to cut climate pollution. David Roberts of Grist called the report’s announcement “a classic example of a press release overhyping and oversimplifying.” 

Published in the Proceedings of the National Academy of Sciences, the paper reaffirms the well-documented idea that cap-and-trade programs help companies meet emissions targets more cheaply than anticipated. The consequence, observed Taylor, was low allowance prices and a consequent decline in related patents.   

The key point of the paper though—and the main reason that this is a positive—is that cap-and-trade regulations keep pollution abatement costs low by encouraging program participants to find and adopt an unexpected range of approaches for reducing emissions.

Here are two key takeaways from Taylor’s paper:

1. Reducing emissions more cheaply than expected goes hand-in-hand with faster-than-expected deployment of clean technologies and strategies.
2. The flipside of low costs and rapid deployment means fewer new inventions and patents (a point Taylor emphasizes).

Overall, the report should be read as good news for California. As Taylor found, these approaches may not result in an onslaught of new patents but they are likely to cut pollution quickly and efficiently. Companies that are capped under California’s program can use industrial energy efficiency, building weatherization and fuel switching efforts to cut emissions.

We appreciate the spirit of Taylor’s inquiry. Yet, the question being asked isn’t the right one.  Rather than asking if a policy spurs measurable innovation in the face of climate change where action is unquestionably needed, the right question is, “does cap-and-trade show greater promise to spur low-cost solutions better than the alternatives?” 

The answer is a definitive “yes” when the cap-and-trade policy creates expectations of a nontrivial, persistent price on pollution. A recent story in Reuters stated that global warming is close to becoming irreversible if we don’t act now. California and economies around the world are acting by putting a price on carbon. This is the most environmentally and economically sensible approach to cutting emissions, which is key to helping us avoid the worst consequences of climate change.

Today, the California Public Utilities Commission (CPUC) approved the sale of Southern California Edison’s (SCE) partial interest in the Four Corners coal-fired power plant to the Arizona Public Services Company. 

This sale is another indication that California’s landmark climate and energy laws—including: AB 32, which puts a price on carbon; SB 1368, its electricity performance standard; and SB 2, its 33% renewable portfolio standard—are working to encourage state utilities to find ways to move toward cleaner energy sources, cut pollution, protect ratepayers, and maintain reliability.

According to long-term resource plans and investment initiatives, SCE intends to replace the 800 MW of power that was generated near the Four Corners landmark in northwest New Mexico with lower-carbon resources such as natural gas, renewable energy, and energy efficiency – all of which can create in-state jobs and economic activity.  

Once the transaction is final, California will have dedicated contracts from four major coal-fired plants:

1. Navajo (Arizona);
2. Reid Gardner (Nevada);
3. San Juan (New Mexico), and;
4. Intermountain (Utah).

Of course, adherence to the California Environmental Quality Act and other applicable state and federal environmental standards must be observed in connection with investments or authorizations related to the sale of an emissions-generating source.  Such provisions are necessary to ensure that documented emissions reductions are real and achieve the environmental benefits desired. 

When this ownership transfer is complete, SCE’s contribution to California's coal shadow will drop by approximately 5 million tons of CO₂ annually, an amount greater than the largest in-state source of greenhouse gas pollution. (EDF first highlighted California’s coal shadow, which is the impact of coal-produced power sold into the state, in a 2005 report.)

EDF looks forward to working with the CPUC and California utilities as environmental regulations are used to reduce our state’s future coal shadow.

*Legal disclaimer:  Nothing in this post is intended to comment on or provide findings or conclusions related to future or pending evaluations of compliance with federal or state law.

Adding to the tidal wave of mounting evidence, a report published Wednesday shows that 3.7 million Americans in coastal states are at risk of increased flooding in the next century if sea levels rise one foot, as climate scientists predict.

Coastal flooding at levels that were once rare could happen every few years by mid-century. This finding is similar to those issued by the National Oceanic and Atmospheric Administration and the United Nations Intergovernmental Panel on Climate Change that link extreme weather to global warming. These science-based agencies predict extreme events will increase in frequency and intensity. Due in part to these warnings and last year’s extreme weather events that caused more than $14 billion in damages, the number of Americans who believe in global warming is at its highest level since 2009.

The new study lists California as the third most at-risk state. Already feeling the effects of climate change, the state is using proven and innovative policies to protect its population and economy. In January, it will launch what many consider to be the single most effective weapon in the climate change fight: a cap-and-trade program that puts a price on carbon by instituting a firm limit on climate pollution.

The risks to California are now more clear than ever. By acting aggressively to fight global warming, California is serving as a model that other states and this country can follow.

Speeding the development of clean energy in California, Oregon, Washington and British Columbia can generate more than one million jobs and $142 billion in gross domestic product (GDP) by 2020, according to a report released Tuesday.

It is the latest study showing that environmental policies can deliver broad economic benefits across industry sectors and to entire regions.

The report is a forward-looking assessment of how the West Coast mega-region can combine efforts to gain powerful competitive advantages. Among the key findings:

• By 2020, the region’s clean economy could grow by more than 200% through the adoption of strategic policy measures, which represents up to $95.5 billion in new GDP contributions.
• It is critical to put a price on carbon and use market-based approaches to drive innovation and investments that create long-term, sustainable employment.
• The sectors with the highest job growth potential are: energy efficiency and green buildings; environmental protection and resource management; and clean transportation.

The West Coast Clean Economy Report was authored by GLOBE Advisors and The Center for Climate Strategies and released at the GLOBE 2012 Conference in Vancouver, Canada.

An Update

Last September, I wrote about some of the barriers that commercial building owners face when they want to finance energy efficiency upgrades for their properties.  The post also discussed an innovative new strategy called an Energy Services Agreement (ESA) that removes several of these barriers.  Since that time, several of the companies mentioned in that post have continued to innovate and make great progress.  I thought it would be useful to provide an update on some of their key accomplishments.

Transcend Equity

Yesterday, Transcend Equity (Transcend) announced that they are being acquired by SCIenergy, a leading energy management solutions company.  This acquisition should provide Transcend with access to additional technology, customers, capital and marketing resources.  EDF is excited to see what the combined company can accomplish.

Transcend recently made a commitment to fund $100 million of energy efficiency (EE) projects as part of the Better Buildings Challenge and broke ground on an ESA transaction in New York City.  Transcend is partnered with Mitsui to provide equity capital for their projects.

Abundant Power

Abundant Power is a diversified EE finance firm that works on a variety of products including Property Assessed Clean Energy (PACE), On-Bill Finance and revolving loan funds in addition to the ESA structure.  Recently, they have helped Alabama establish a $60 million revolving loan fund and Washington, DC establish a commercial PACE program that could finance up to $250 million of EE upgrades.  Abundant Power has also committed $100 million of financing as part of the Better Buildings Challenge.

Green Campus Partners

Green Campus Partners (GCP) has arranged over $350 million in EE financings for public sector properties and completed two ESA transactions in 2011 for private universities.  GCP committed to Better Buildings Challenge $100 million of EE financings in 2011 and another $200 million in 2012.  The firm exceeded its target in 2011 and expects to do the same in 2012.

GCP has also worked with EDF on the Clean Heat NYC campaign and recently signed a major development agreement with St. Barnabas Hospital to finance their conversion away from dirty heating oil.

Groom Energy

Groom Energy is a Boston-based EE project developer that offers ESA-style financing options for customers.  To date they have been most active in the commercial and industrial space.  Groom Energy is also a thought leader in the Enterprise Smart Grid, which uses advanced technology to monitor and reduce energy usage behind the meter.  This morning, Groom Energy published a comprehensive report on the topic.

Metrus Energy

Metrus Energy (Metrus) has had a very productive start to 2012 including a recent high-profile ESA project selection and a pipeline of advanced stage projects that totals $50 million. Metrus has broadened the geographic diversity of its pipeline which now spreads across the commercial, industrial and institutional markets, with active projects under development in the financial institutions, media and entertainment, telecommunications, hospital, higher education and non-profit sectors. Metrus is on-pace to exceed its $75 million investment commitment under the Better Buildings Challenge program. On the project implementation front, Metrus is actively advancing its existing ESA program with BAE systems with the addition of several multi-million dollar projects at new BAE sites. BAE Systems is a global company engaged in the development, delivery and support of advanced defense, security and aerospace systems.  Metrus has also expanded its base of Energy Services Companies (ESCOs), contractors and energy utility channels by adding 25 new partners.

Carbon Lighthouse

Since launch in 2010, Carbon Lighthouse (CL) has completed projects at 70+ office towers, schools, community centers and industrial facilities in California and Oregon. CL achieves its mission by combining energy efficiency, retro-commissioning, demand response, solar and competition for pollution permits into one simple package for customers.  CL primarily provides projects on a deferred compensation basis similar to an ESA, and can also provide customers with third party direct ESAs or utility On-Bill Finance and Repayment programs.

Conclusion

EDF has worked with each of these five firms and we are encouraged by their energy, focus and innovation.  Each firm has a somewhat different business strategy and mix of products, but the EE market should be large enough to support a variety of business models.  We look forward to continuing to work with these firms and others as this critical market grows in the coming years.

This commentary was originally posted on the EDF Energy Exchange Blog.