GLOBAL WARMING INITIATIVES IN THE WESTERN STATES: Update on California Presented by: Seth D. Hilton...

GLOBAL WARMING INITIATIVES IN GLOBAL WARMING INITIATIVES IN THE WESTERN STATES: THE WESTERN STATES:

Update on CaliforniaUpdate on California

Presented by:

Seth D. HiltonStoel Rives LLP

111 Sutter Street, Suite 700San Francisco, CA 94104

[email protected]

October 4, 2007

SB 1368 – Greenhouse Gas SB 1368 – Greenhouse Gas Emissions StandardEmissions Standard

• Emissions Standard– No load serving entity or local publicly owned electric

utility may enter into a long-term financial commitment unless any baseload generation supplied under the long-term financial commitment complies with the greenhouse gases emissions performance standard


• Responsible Agencies– California Public Utilities Commission

• By February 1, 2007, shall establish emission performance standard for utilities, ESPs, and CCAs

• Adopted emission performance standard on January 25, 2007 in D.07-01-039


• Responsible Agencies– California Energy Commission

• By June 30, 2007, shall establish emission performance standard for local publicly owned electric utilities

• On August 29, 2007, adopted regulations consistent with CPUC standard in Order No. 07-0829-6

AB 32 – The Global Warming AB 32 – The Global Warming Solutions ActSolutions Act

• Basics– Requires reduction in greenhouse gas emissions to

1990 levels by 2020– Sources Covered:

Any source or category of source whose emissions are at a level of significance . . . that its participation in the program . . . will enable the state board to effectively reduce greenhouse gas emissions and monitor compliance with the statewide greenhouse gas emissions limit


Responsible AgenciesCalifornia Air Resources Board—charged with

implementation of AB 32

California Public Utilities Commission and California Energy Commission—will provide recommendations to CARB for energy sector in joint proceeding (R.06-04-009/07-OIIP-1)


• Implementation timelines– Three elements to implementation:

• Reporting—deadline January 1, 2008• 1990 Emissions Level—deadline January 1, 2008• Reductions

– Early Action Measures—June 30, 2007– Scoping Plan—January 1, 2009– Early Action Measures Adopted—January 1, 2010– Reduction Regulations Adopted—January 1, 2011– Regulations Become Effective—January 1, 2012


• Timelines: Reporting deadline 1/1/08

CARB issued draft reporting regulation for August 15, 2007 workshop. Final proposed regulation to be released October 19, 2007, for consideration at December 6-7, 2007 Board meeting.

CPUC/CEC Joint Opinion on Reporting and Verification of Greenhouse Gas Emissions in Electricity Sector (CPUC D.07-09-017)


• Timelines: Establish Limit 1/1/08 AB 1803 transferred responsibility for preparing

and updating California’s GHG inventory from CEC to CARB beginning 1/1/07

CARB staff will present 2020 Statewide GHG emissions limit for December board meeting


• Timelines: Reductions– Market-Based Compliance Mechanisms

• AB 32 gave CARB the option to allow market-based compliance mechanisms

• CARB’s January 1, 2009, Scoping Plan will identify and recommend market-based compliance mechanisms that CARB finds are “necessary or desirable”


• Market Advisory Committee – Created by Executive Order S-20-06 (Oct. 18, 2006)– Issued recommendations on June 30, 2007– Recommended “first seller” rather than load-based

approach


• Next Steps– CARB adopts reporting regulations 12/07– CPUC/CEC addresses load-based v. “first seller” 2/08– Draft scoping plan issued by CARB 10/08

Summary of Key DeadlinesSummary of Key Deadlines

Due Date Task AgencyFebruary 1, 2007 Establish emissions performance standard for load

serving entitiesCPUC

June 30, 2007 1. Publish list of early action emission reduction measures

2. Establish emissions performance standard for local publicly owned electric utilities

CARB

CEC

January 1, 2008 1. Adopt reporting and verification regulations

2. Determine 1990 baseline level

CARB

January 1, 2009 Approve scoping plan for maximum reductions by 2020 CARB

January 1, 2010 Adopt regulations for early action measures CARB

January 1, 2011 Adopt regulations on emissions limits and reduction measures

CARB

January 1, 2012 Regulations go into effect CARB

GLOBAL WARMING INITIATIVESGLOBAL WARMING INITIATIVESIN THE WESTERN STATES: IN THE WESTERN STATES:

Other Efforts in the Westto Control Greenhouse Gas Emissions

Presented by:

Christopher M. HeapsStoel Rives LLP

900 SW Fifth Avenue, Suite 2600Portland, OR 97204

[email protected]

October 4, 2007

Western Climate Initiative (WCI)Western Climate Initiative (WCI)

• Collaborative effort to identify, evaluate, and implement ways to reduce GHGs in the region

• WCI Partners: Arizona, British Columbia, California, Manitoba, New Mexico, Oregon, Utah & Washington

• WCI Observers: Colorado, Kansas, Nevada, Ontario, Quebec, Saskatchewan, Sonora & Wyoming


• Regional Goal: Aggregate reduction of GHGs 15% below 2005 levels by 2020– Goal is consistent with, and does not replace, goals of

individual WCI Partners– Data updates & entrance of new WCI Partners may

incrementally change goal

• WCI Partners plan to complete design of market-based mechanisms to help achieve GHG reduction goal by August 2008

• Establish a regional GHG registry to track emissions and credit reductions


• WCI Partners encourage participation of new US States, US Tribes, Canadian Provinces, and Mexican States that have or are:– Adopted an economy-wide GHG reduction goal;– Developing comprehensive action plan to achieve

goal;– Committed to adopt GHG tailpipe standards for

passenger vehicles; and– Participating in Climate Registry

WCI Partner GoalsWCI Partner Goals

2010-12 2020 2040-50

AZ not est. 2000 levels 50% < 2000

BC not est. 33% < 2007 not est.

CA 2000 levels 1990 levels 80% < 1990

MB 6% < 1990 6% < 1990 not est.

NM 2000 levels 10% < 2000 75% < 2000

OR arrest growth 10% < 1990 76% < 1990

UT Will set goals by June 2008

WA not est. 1990 levels 50% < 1990

Arizona Climate Action InitiativeArizona Climate Action Initiative

• Arizona Climate Change Advisory Group established by Executive Order:– Establish baseline GHG inventory– Develop Action Plan

• Climate Change Action Plan:– 49 recommendations for GHG reductions in AZ– Reductions in all economic sectors, focusing on

agriculture and forestry, transportation and land use, energy supply, and fuel use

British Columbia’s Climate Change British Columbia’s Climate Change PlanPlan• 40 identified actions• 50% of new electricity demand met with

renewable energy• Emissions considerations incorporated in

transportation planning• Incorporation of carbon management principles

in Provincial forests and agriculture operations• Adaptation of LEED building standards for BC

and use in new government construction

ManitobaManitoba

• Goal is to meet and exceed GHG targets established in Kyoto Protocol

• Install 1,000 MW of wind generation over next decade

• Manitoba Hydro’s Earth Power Loan Program allows installation of ground source heat pumps in new and existing residences

• Revising building code to incorporate advanced energy efficiency standards

• Incentives for biofuel and hydro power development

New MexicoNew Mexico

• New Mexico Climate Change Advisory Group established by Executive Order:– Establish baseline GHG inventory– Develop Action Plan

• Climate Change Action Plan:– 69 recommendations for GHG reductions in NM– Reductions in all economic sectors, focusing on

agriculture and forestry, transportation and land use, energy supply, and fuel use

Oregon Strategy for GHG ReductionOregon Strategy for GHG Reduction

• Oregon Global Warming Commission will develop GHG reduction recommendations

• Promotion of energy efficiency measures• Increased renewable energy generation:

25% by 2025– OPUC rulemaking ongoing currently

• Considering Pavley GHG emissions standards for vehicles

• Farm and forest carbon capture and storage• Aggressive biofuels standard

WashingtonWashington

• Imposed emissions performance standard on baseload electricity generation– 1,100 lbs CO2/MWh – Applies to all plants serving load in WA– Effectively bars pulverized coal-fired generation without

sequestration or other carbon management strategies– WUTC rulemaking ongoing currently

• Increased renewable energy generation: 15% by 2020 for large utilities

• Adopted Pavley GHG emissions standards for vehicles

GLOBAL WARMING INITIATIVES GLOBAL WARMING INITIATIVES IN THE WESTERN STATES:IN THE WESTERN STATES:

Impacts on the Location and Marketingof Electric Generation

Presented by:

Marcus WoodStoel Rives LLP


[email protected]

October 4, 2007

Risks and Uncertainties in Power Risks and Uncertainties in Power Sale AgreementsSale Agreements

• Commonly-included environmental risk provisions include:– Environmental compliance covenants– Allocation of the cost of new environmental

requirements– Allowance for environmentally-driven operating

restrictions


• Allocable risks due to global warming initiatives:– Siting: Unanticipated restrictions on net carbon

emission can increase cost of a thermal facility– Governmental Assessments: Carbon emissions may

be taxed in the future, and greenhouse gas allowances may be auctioned rather than allocated

– Force Majeure: If a load serving purchaser of output cannot obtain sufficient carbon allowances, the purchaser might assert a force majeure claim


• New contract terms necessitated by global warming laws and regulations include:– Allocation of responsibility for obtaining greenhouse

allowances (usually to load supplier)– Allocation of benefits of any carbon allowances, if

allowances are granted to the generation owner– Allocation of risk of carbon-based output caps or

carbon offset requirements for generation facilities

Marketing of the Output of Remotely-Marketing of the Output of Remotely-Sited Renewable GenerationSited Renewable Generation• Key facts

– California has a greater demand than supply of renewable generation

– Utility executives acknowledge that global warming legislation will change the mix of resources in their resource plans

– California is reaching out for distant U.S. (or even Canadian) renewable resources, while Washington law tends to block such resources

– Because of the lack of unconstrained interstate transmission and restrictions on dynamic transmission scheduling, distant renewable generation often must be stored and shaped for delivery to California

Washington RPS Definition of Washington RPS Definition of “Eligible Renewable Resource”“Eligible Renewable Resource”

• “Eligible renewable resource” means:

“(a) Electricity from a generation facility powered by a renewable resource other than fresh water that commences operation after March 31, 1999, where: (i) The facility is located in the Pacific Northwest; or (ii) the electricity from the facility is delivered into Washington state on a real-time basis without shaping, storage, or integration services”

Marketing of the Output of Remotely-Marketing of the Output of Remotely-Sited Renewable GenerationSited Renewable Generation• What are energy storage and shaping services

– Entity with a load “sink” in the location of the generator takes the generation into its system to meet load in real time, often treating the resource as a network resource. This is “storage”

– Storage provider redelivers the generation as a future prescheduled firm product to a point of delivery with the energy purchaser. Hourly firm transmission is used for delivery, thus substantially reducing transmission costs for delivery of intermittent generation

– The point of delivery may be on the load side of a transmission constraint between the generator and load

– Storage and shaping can come in many varieties and is underexploited by renewable resource owners

Marketing of the Output of Remotely-Marketing of the Output of Remotely-Sited Renewable GenerationSited Renewable Generation• Impacts of global warming legislation and rules

on the storage and shaping of remote renewable generation– How is the “storing” resource treated under the global

warming regimes (i.e., what is the resource “deemed” delivered)?

– Impacts of the “no non-regional storage” requirement in the Washington legislation

Global Warming and Construction of Global Warming and Construction of Western TransmissionWestern Transmission• Global warming concerns may block transmission

– Example: Frontier Line

• The Northwest region is wary of building transmission for carbon emitting resources, for export of renewable resources, or for Canada-to-California transactions– Examples: N. California to Canada line and Northern

Lights line

• On the other hand, global warming may speed transmission construction and initiatives– Examples: BPA transmission open season and BPA

wind energy initiatives

ConclusionConclusion

• For thermal generation– You will be needed, but challenged– Negotiate carefully the power sales contract

provisions related to global warming

• For renewable generation– You will be in demand; a seller’s market is developing– If you can get your product to market

GLOBAL WARMING INITIATIVES GLOBAL WARMING INITIATIVES IN THE WESTERN STATES:IN THE WESTERN STATES:

Why Energy Efficiency and Green Building Will Play Major Roles in Reducing Greenhouse Gas Emissions and Addressing

Global Climate Change

Presented by:

Stephen C. HallStoel Rives LLP


[email protected]

October 4, 2007

Why Energy Efficiency Must Play A Why Energy Efficiency Must Play A Role in Addressing Climate ChangeRole in Addressing Climate Change• New renewable energy capacity will not be

enough to meet GHG reduction goals• Energy efficiency offers vast potential for

reduction of GHG emissions• Energy efficiency is the low-hanging fruit of CO2

reductions– Many advantages over renewable energy

• We already have the technology and knowledge to cost-effectively achieve energy efficiency on a large scale

The Importance of Green Building in The Importance of Green Building in Addressing Climate ChangeAddressing Climate Change• Buildings are major users of energy

– 40 percent of energy use comes from the building sector

– For a variety of reasons, the absolute amount of energy usage is growing

• Improved living standards in developing countries• (Relatively) cheap electricity in the U.S.• Air conditioning• Flat screen televisions

Understanding Energy EfficiencyUnderstanding Energy Efficiency

• Energy efficiency means doing more (and often better) with less energy – Energy efficiency is different from

• energy conservation• load management/demand response

• High-Efficiency Products

– Windows

– Motors, Pumps, Drives, Compressors

– Insulation and Building Materials

– Household Appliances

– Heating, Ventilation, Air Conditioning (HVAC)

– Sensors and Control Systems

– Lighting Equipment

– Distribution Transformers

– Office Equipment

– Control and Metering Equipment

– Cogeneration/Combined Heat and Power

– Industrial Process Equipment

• Energy Efficiency Services– Energy Performance Contracting– Building and System Design Software– Process Improvement Engineering

Existing Obstacles to Energy Existing Obstacles to Energy EfficiencyEfficiency• Regulatory flaws

– e.g., utility rates that reward utilities for selling more energy– e.g., building codes that specify minimum safety

requirements, not maximum energy efficiency value• Organizational failures• Lack of information• Perverse incentives• False or absent price signals• Incomplete markets and property rights• Risks to manufacturers and distributors• Capital misallocation

Harnessing the Potential of Energy Harnessing the Potential of Energy EfficiencyEfficiency

• Regulatory mandates• Market-based approaches• Improved state and federal policies• Access to financing

Regulatory Mandates: Regulatory Mandates: The California ModelThe California Model• The California Public Utilities Commission issued a Proposed Decision on

September 17, 2007 (proceeding number R.06-04-010) that lays the foundation for making energy efficiency an integral part of "business as usual" in California

• Directs the utilities to prepare a single, comprehensive statewide long-term energy efficiency plan

• Adopts three programmatic initiatives: – All new residential construction in California will be zero net energy by 2020 – All new commercial construction in California will be zero net energy by 2030 – Heating, Ventilation, and Air Conditioning (HVAC) industry will be reshaped to

ensure optimal equipment performance

• Develops the "next generation" of California utility energy efficiency programs for 2009-2011

• Commits in the near term goals to adopting energy efficiency goals through 2020 and reaffirms our previously adopted 2009-2011 goals

• Establishes new, collaborative processes with key business, consumer groups, and governmental organizations in California, throughout the West, nationally and internationally

The California Model: Challenges The California Model: Challenges and Opportunitiesand Opportunities• Evaluation, measurement & verification of CO2

savings from energy efficiency• Integration of energy efficiency policies into the

AB 32 GHG cap structure• Jurisdiction

– CPUC lacks jurisdiction over energy efficiency standards for appliances and new buildings

• Ownership of energy efficiency gains is unclear

Energy Efficiency-Friendly Policy Energy Efficiency-Friendly Policy ChangesChanges• Treat energy efficiency as a separate resource• Renewable Portfolio Standards• Integration of tradable energy efficiency credits

(“EECs”) into cap-and-trade system• Remove disincentives for utilities• Clear regulatory signals about

– How the carbon benefits of energy efficiency will be calculated

– Ownership of energy efficiency– Credit for embedded efficiency – Interaction between GHG caps and energy efficiency

measures

The Challenges of Financing Energy The Challenges of Financing Energy EfficiencyEfficiency• High performance buildings cost more to build but they

are also worth more because they deliver operating cost savings by reducing monthly energy bills

• However, there is often a mismatch of benefits and costs– e.g., landlord owns the building, but the tenant pays the electric

bill• A variety of different standards, methods and values that

are continually evolving• Quantifying the many different and unfamiliar types of risk

and benefit into standard real estate risk/benefit business models

• The many parties involves in developing a green project are often not coordinated or working at cross purposes, undermining the ability to fully deliver on potential benefits

Federal Tax Incentives for Energy Federal Tax Incentives for Energy EfficiencyEfficiency

• Tax Deductions for Commercial Buildings– A tax deduction of up to $1.80 per square foot is available to

owners or designers of new or existing commercial buildings that save at least 50 percent of the heating and cooling energy of a building that meets ASHRAE Standard 90.1-2001

• Includes building envelope, interior lighting, heating, ventilating and air conditioning (HVAC) and service hot water (SHW) systems

– Partial deductions of up to $.60 per square foot can be taken for measures saving at least 16 2/3 percent in energy costs affecting any one of three building systems: the building envelope, lighting, or heating and cooling systems

– The credits are available for systems “placed in service” from January 1, 2006 through December 31, 2008

Innovative Models for Financing Innovative Models for Financing Energy EfficiencyEnergy Efficiency• Green Loans

– Loan for energy efficiency upgrades is carried by the condominium Home Owner’s Association

– Note: Check with local real estate laws

• Clinton Climate Initiative Building Retrofit Program– Five large financial institutions

• $5 billion in commitments– Four largest energy service companies (“ESCOs”) – Retrofitting existing buildings in 16 cities worldwide– Goal is to include smaller buildings and to globalize the market for ESCOs– The program seeks to reduce the cost of implementing building retrofits by

streamlining lending approval processes and reducing the cost of energy efficient and clean energy products used in the retrofits

– Retrofitting existing buildings in 16 of its partner cities

• Carbon offsets

On-Site Renewable Energy On-Site Renewable Energy

• On-site Renewable Energy– Solar photovoltaics– Wind microturbines– Building-integrated photovoltaics (BIPV)

• Ownership models– Traditional– Third-Party Investment

• Power purchase agreements• Lease models

To order any of these books orTo order any of these books orour upcoming our upcoming Law of the SunLaw of the Sun, please contact: , please contact:

Stephen C. Hall * 503.294.9625 * [email protected] * www.stoel.comStephen C. Hall * 503.294.9625 * [email protected] * www.stoel.com

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GLOBAL WARMING INITIATIVES IN THE WESTERN STATES: Update on California Presented by: Seth D. Hilton...

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