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California Public Utilities Commission
Why a Load-Based Emissions Cap for California?
Julie FitchCPUC Director of Strategic
Planning
April 19, 2007
Presentation to
Symposium on Linking GHG Cap and Trade Systems
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California Public Utilities Commission
Load-Based: What and Why
• What is it?– A firm cap on emissions (just like conventional source cap)– Capped entities are load-serving entities instead of
generators– Still requires emissions reporting and tracking by source– Emissions are then attributed to load-serving entities (utilities
and other service providers) based on energy delivered to consumers (aka retail sales)
– Can be linked with other source-based sectors and systems (AB 32, RGGI, EU ETS)
– It’s a carbon portfolio requirement for LSEs = “carbon budget”
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California Public Utilities Commission
Why choose load-based?
1. Builds on portfolio role of LSEs – carbon budget disciplines LSEs to capture economic tradeoffs among end-use efficiency, distribution efficiency, renewables, and conventional supply choices
– Promotes efficiency better than generator cap– LSEs deliver end-use efficiency, generation does not
2. Captures imports (required by AB 32)
3. May cost power consumers less for the same attainment (has not been tested)
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California Public Utilities Commission
Some History
• Energy Action Plan* of CPUC and CEC (May 2003) includes concept of “loading order”– Energy efficiency and demand response– Renewables, including distributed– Conventional generation
• Procurement proceeding of 2004– Continuation of proceeding that returned utilities to
power-buying business post-energy-crisis– Took up issue of how to incentivize utilities to
invest properly in “loading order”
*The EAP can be found at: www.cpuc.ca.gov/PUBLISHED/REPORT/28715.htm
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California Public Utilities Commission
Evolution of “Procurement Incentive Framework”
• Staff realized that greenhouse gas emissions could be a unifying framework for a utility procurement risk/reward mechanism or “procurement incentive framework”
• Original staff proposal (issued April 2004) referred to as “Sky Trust” proposal – contemplated auctioning allowances to pay for additional energy efficiency and renewables investment
• Held series of workshops March 2005; staff modified proposal to suggest a load-based GHG cap instead of “Sky Trust” (in response to workshop comments)
• Governor announced GHG targets in Executive Order in June 2005
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California Public Utilities Commission
Load-Based Cap Decision• February 2006 Decision* adopted load-based GHG emissions
cap as the unifying framework for utility procurement incentives• Decision made initial policy calls on some implementation issues
– Emissions allowances based on “tons of CO2 equivalent”, and over time to include all six major GHGs
– Cap will include provisions for lowering GHG emissions over time relative to a baseline
– Baseline will be established on a historical year basis, with 1990 as the preference year to comport with Kyoto and the Governor’s GHG targets
– Emissions allowances to be allocated administratively (not necessarily grandfathered)
– Flexible compliance to be allowed (details to be worked out), based on verifiable and feasible reductions
– Preference for allowing alternative compliance payments, as well as sales of excess allowances for shareholder profit
*Decision is posted at www.cpuc.ca.gov/word_pdf/FINAL_DECISION/53720.doc
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California Public Utilities Commission
Regulatory and Market-Based Solutions
Regulatory• Renewables Portfolio
Standard• Energy Efficiency• Environmental Risk
Adder• Emissions Performance
Standard
Market-based• Load-based GHG
emissions cap
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California Public Utilities Commission
Interaction of Cap with Other Policy InitiativesE
mis
sion
s R
educ
tion
s
Time
Mandatory RPS
Mandatory EE Programs
Current System Initial GHG Cap GHG Cap Ratchet
Mandatory RPS
Mandatory EE Programs
Additional EE
Portfolio mgt – clean power
Mandatory RPS
Mandatory EE Programs
Additional EE
Portfolio mgt & clean power
Buy CCS
Buy repower
TotalGHG emissionsreductions
More EE
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California Public Utilities Commission
Climate and Procurement Policy Integration
• Load-based cap approach more effective at integrating energy efficiency into climate efforts– Focus on generation sources alone would make
efficiency investments exogenous to the GHG cap structure
• Same logic is true for renewables and other “loading order” resources
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California Public Utilities Commission
Implications of Load-Based GHG Cap for Resource Choices
• LSEs are portfolio managers– GHG emissions are added to direct financial cost
in assembling the portfolio– Load-serving entities can readily make tradeoffs
and cost-effective choices among resource options
• Load Based cap is not just a planning “adder” – Quantitative cap, not % performance standard– Choices have costs in the LSE’s carbon budget– Efficiency and clean resources deliver financial
savings to LSEs
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California Public Utilities Commission
Current Greenhouse Gas Proceeding
Opened April 2006• Phase 1: Adoption of Emissions Performance
Standard – Began April 2006 to be implemented by end of 2006– SB 1368 signed September 2006; required slight
modifications to CPUC staff recommendation– EPS adopted January 25, 2007
• Phase 2: Implementation of Load-Based Cap– Was to begin September 2006– AB 32 signed September 2006– CPUC delayed starting Phase 2 to coordinate with CARB
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California Public Utilities Commission
AB32 Requirements
AB 32, now codified as Section 38505 of the Health and Safety Code, contains the following definition:
(m) “Statewide greenhouse gas emissions” means the total annual emissions of greenhouse gases in the state, including all emissions of greenhouse gases from the generation of electricity delivered to and consumed in California, accounting for transmission and distribution line losses, whether the electricity is generated in state or imported. Statewide emissions shall be expressed in tons of carbon dioxide equivalents.
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California Public Utilities Commission
California’s Electricity-Related Greenhouse Gas Emissions
Source: CA Energy Commission Emissions Inventory
2004 Electricity Sales (MWh)
In-State Generat-
ion77%
Imports23%
Emissions (MMT CO2e)
In-State Generat-
ion44%
Imports56%
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California Public Utilities Commission
Two Options (maybe…)
1. Load-Based cap on all electricity sector emissions (in-state and imported)
2. Hybrid system with source-based cap on in-state generation and load-based approach to cover imports– Has various incarnations– Potentially serious concerns about legality
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California Public Utilities Commission
Bottom Line
• Perfect system has not yet been designed• Think multiple designs can work as long as
systems have:– Environmental integrity– Common currency
• CPUC interest in trying a different model that works for California
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California Public Utilities Commission
Contact information
Julie Fitch
Director, Division of Strategic Planning
California Public Utilities Commission
Phone (415) 355-5552
Email: [email protected]