California’s Leadership Role on the Environment

Joel Kurtzman, Energy Policy Specialist with the Milken Institute
Douglas A. Wilson, Vice-Chair of the New Majority Energy Task Force

If California were an independent country, it would be the world’s ninth largest economy. That’s the good news. The bad news? California’s the world’s ninth largest emitter of greenhouse gases. And, while California has taken action — energy usage on a per capita basis has remained flat for a decade — it still has a long way to go. The state is growing in population and every new person coming to California adds to the state’s carbon footprint.

When it comes to climate change, the only metric that matters is tons of CO2 emitted into the atmosphere, and California still emits too much. One of the objectives of AB32, the energy bill which Governor Schwarzenegger endorsed and the assembly passed early last year, has been to reduce California’s greenhouse gas emissions to 1990 levels. It’s a bold plan that aims to bring California up to global standards, even though the rest of the country lags behind.

Because the country is concerned about climate change, California is viewed as the national leader. Since AB32 was passed, fourteen states and three Canadian provinces have agreed to abide by its goals. Standards set in Sacramento have become the de facto standards for the rest of the country. And, when Gov. Schwarzenegger announced he was suing the Environmental Protection Agency because it set the emissions bar too low, other states joined in. Without strong voices in Washington advocating for the environment, the country looks to Sacramento to do that job.

But it’s not just government that’s leading. A number of California based companies, like Safeway and Northern California utility PG&E, have also stepped out ahead. PG&E has pushed for hydrogen, wind power, and solar energy alternatives while, in March, Safeway converted its entire fleet of 1,400 trucks to run on biodiesel. Safeway also announced plans to enhance its use of solar and wind energy.

But problems remain. So far, rules regarding the implementation of AB32 have not been released, missing the target of March 8. That has people wondering. Will the cap-and-trade system that Governor Schwarzenegger and the legislature envisioned, where companies can trade or sell unused CO2 credits in ways that foster innovation, be developed as a real market or will it be something less. In other words, will California place restrictions on the price innovative companies can charge for being the first to reduce emissions?

Much of the debate within the California Air Resources Board has been on this topic, with some CARB members arguing that, without price caps, some companies might suffer. But the point is, if there are price caps, innovative companies won’t have the incentive to invest in innovation and polluting companies won’t feel sufficient pain to change their ways.

Markets work magic if they are allowed to set prices, whereas bureaucrats can only create havoc if they attempt to intervene in that process. We should have learned that from the electricity debacle of nearly a decade ago. Rather than a real market, bureaucrats created half a market, which is no market at all.

Another issue to be resolved is how CARB will view investments that have already been made by farsighted companies like PG&E and Safeway. Will they get credit for what they’ve already done, or will they be penalized by bureaucrats who ignore those investments?

While CARB argues over how AB32 will be implemented, and wastes more time, managers with tens of billion of dollars to invest are waiting on the sidelines. They need policy certainty, and California needs their dollars.

On May 13, scientists, business leaders, investors, state policy makers and the Governor will come together with the New Majority Non-Partisan Energy Task Force, the University of California at Irvine, and the Milken Institute to discuss these and other issues. It will be an important meeting of minds. One aim of this energy symposium will be to make certain that California does not squander its lead for our nation and for the world.

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