Air Pollution Control Equipment Services, Emissions, Nuclear

California’s Low-Carb Diet

Issue 11 and Volume 110.

California Governor Arnold Schwarzenegger signed a bill in late September setting the ambitious goal of reducing by 2020 greenhouse gas emissions (GHG) by approximately 25 percent to 1990 levels.

“If we do this right, we will be a model for other states, the nation and other countries. So our vocabulary does not include failure,” Linda Adams, secretary of the California Environmental Protection Agency, told the Sacramento Bee newspaper.

Assembly Bill 32 (AB 32) and related Senate Bill 1368 (SB 1368) will be the most far-reaching legislation in the United States aimed at GHG emissions. The bills, while related, deal with emissions reduction in very different ways.

The California Air Resources Board (CARB) will be the main regulatory body in charge of defining the rules regarding monitoring, reporting and enforcing AB 32. CARB will work with the California Public Utilities Commission (CPUC) and the California Energy Commission (CEC) in regulating electricity providers.

CARB will decide what 1990 GHG emission levels were and make the rules deciding who must reduce by how much and how many allowances they will have. It will determine whether electricity providers must reduce GHG at the source and function under a cap on emissions scheme or whether they can use market-based trading, which will allow them to buy, sell or trade emission credits or a combination.

AB 32’s language allows a market-based cap-and-trade system, but does not mandate it. The system could resemble the existing federal Acid Rain Program or it could be influenced from international systems resulting from the Kyoto Protocol.

The legislation won’t just restrict what California plants may emit. Instead, it will regulate the long-term supply contracts electric utilities make, giving it potentially far-reaching influence over power plants outside of the state.

AB 32, also called the California Global Warming Solutions Act of 2006, will restrict GHG emissions for all industries. It addresses the issue of “leakage,” which it defines as an increase in GHG emissions outside of California from emitters who have either left the state or opted to buy supplies from non-California companies.

SB 1368 expands on AB 32 by dealing with electric utilities and any “load-serving entity,” including local publicly owned utilities that previously were exempt from state regulation. It also addresses leakage for electric service providers and limits the type of long-term contracts they can make both inside and outside of the state.

The biggest winners to emerge from the legislation appear to be natural gas-fired combined cycle (NGCC) plants, said electricity regulation law expert Marcus Wood with Stoel Rives LLP. That’s because SB 1368 deems all NGCC plants already to be in compliance. Renewable projects will also be in higher demand, but their profitability will likely depend on how emissions credits will be handled in any market-trading mechanism. That uncertainty could scare off investors, Wood said, until rules governing any new market-based program are defined.

But the pink elephants are nuclear and coal. Neither is mentioned directly in the legislation, but how they are addressed in the rule-making process could have major effects on California’s future generation mix.

One question for utilities is whether zero-emissions nuclear plants will receive emission credits for their operation. That could place the only two operational nuclear plants in the state, Diablo Canyon (PG&E) and San Onofre (SCE and San Diego Gas & Electric Co.), into an advantageous position. It could also spur debate on whether to build new plants or reactivate older ones like the Sacramento Municipal Utility District’s Rancho Seco nuclear plant.

For now, California law bars construction of any new nuclear power plants within its borders until the CEC decides a demonstrated technology exists for spent fuel disposal. However, investors could see a source of income from nuclear plants outside of the state that export power to California.

The only allusion to coal in the legislation is in SB 1368, which mentions carbon dioxide sequestration. The bill says that when this method is used, emissions pumped into the ground will not be counted. That could encourage integrated gasification combined cycle (IGCC) technology with or without carbon sequestration. IGCC plants emit less GHG than pulverized coal units and could be a future option for California.
– Amethyst Cavallaro