john a. mckinsey stoel rives llp 770 l street, suite 800 sacramento, ca 95814 916.319.4746
DESCRIPTION
IMPLEMENTATION OF THE GLOBAL WARMING SOLUTIONS ACT: AB-32 (AND SB-1368). John A. McKinsey Stoel Rives LLP 770 L Street, Suite 800 Sacramento, CA 95814 916.319.4746 [email protected]. CO2 Reduction Measures and Emission Limits. - PowerPoint PPT PresentationTRANSCRIPT
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IMPLEMENTATION OF THE
GLOBAL WARMING SOLUTIONS ACT: AB-32 (AND SB-1368)
John A. McKinseyStoel Rives LLP
770 L Street, Suite 800Sacramento, CA 95814
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Overview of AB-32 and SB-1368
SB-1368
AB-32• Broad in scope but some focus is on electricity generation, oil refining, and cement
• Requires CARB to reduce CO2 Emissions to 1990 levels
• CARB to Determine Reduction Measures
CO2 Reduction Measures and Emission Limits
• Specific to electricity industry
• Prohibits long term PPA’s with baseload generation facilities that don’t meet CO2 emission standards
• CPUC to set performance standard for IOU’s
• CEC to set performance standard for muni’s
Baseload Electricity Performance Standards
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What Are the Issues?
• How will CARB reduce CO2 emissions? – Will trading of CO2 credits be allowed?– Will power plants be required to reduce or
offset emissions? (Load or source-based?)– What effects will this have on facility
development and value?
• What will the performance standard be for baseload units and what will it do to facility development trends?
AB-32
SB-1368
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Electricity Industry Perspectives
• Utility or Independent Power Producer?
• Baseload or peaker?
• Renewable energy or traditional fossil fuel based?
Depending on what your perspective is, you probably have different viewpoints on the issues
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• Adopt a list of early action measures by July 1, 2007 that can be implemented before January 1, 2010 and adopt such measures by then.
• Establish by January 1, 2008, a statewide GHG emissions cap for 2020, based on 1990 emissions.
• Adopt mandatory reporting rules by January 1, 2008 for significant sources of greenhouse gases.
• Adopt a scoping plan by January 1, 2009 that indicates how emission reductions will be achieved from significant GHG sources via regulations, market mechanisms and other actions.
• Adopt regulations by January 1, 2011 to achieve the maximum technologically feasible and cost-effective reductions in GHGs, including provisions for using both market mechanisms and alternative compliance mechanisms.
What AB-32 requires CARB to do:
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Reduction Measures and Limits (AB-32)- Major Questions
• “How” will CARB reduce emissions? Indirectly, directly, or a combination of both?– Answer: It is clear that direct reductions will be
included. Indirect (trading) is not as clear.
• “What” will CARB reduce? Existing plants? New plants? “Dirtier” ones? Less efficient ones?
• “How much” will CARB reduce emissions?– Answer: Probably as much as is feasible.
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The Monster
1990: 440 Million Metric Tons (MMT)
2004: 500 MMT
2020 Projected: 610
The Task: Reduce the emission rate by about 170 MMT in 16 years (includes reductions to counter further increases)
CO2
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AB-32: Early Action Measures
• CARB “Adopted” three measures- Low carbon fuel standard- Auto A/C improvements- Landfill methane capture
• CARB has announced six more measures:– Trucking (aerodynamic retrofitting)– Ports (plug in docked ships to they can turn off)– Tire pressure (no tickets, don’t worry)– Semiconductor industry (standards)– Consumer products (standards)– Reduce use of sulfur hexafluoride
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AB-32: Early Action Measures cont….
• CARB has also announced five more measures to come:– Cement plant efficiency– Cement blending requirements– Ban on truck idling at rest stops– Recover refrigerants– Possible fertilizer standards
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Reduction Measures and Limits (AB-32)- Thoughts
• CARB has broad task and vehicle emissions, though a major source, are not really an option for reductions right now.
• This endeavor is new. Expect delays, missteps, lawsuits, and lots of uncertainty.
• Lurking quietly in the background is the federal government. With one quick action, the California scheme could be gutted, eliminated, or significantly changed.
• California electricity generation is already very lean on CO2 and getting leaner. It may be very hard to squeeze many reductions out.
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Implementing AB-32 on the Electricity Sector• The CPUC is taking the initiative to continue its GHG
rulemaking. In Phase II it plans to adopt, as recommended to CARB, a load-based cap and trade scheme for the electricity sector.
• CARB is not obligated to follow the recommendation.
• The battle over the electricity sector under AB-32 will come down to:– Load or source-based?– Trading, direct, or both?– How much?
• It is clearly significantly too early to predict the outcome.
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Performance Standards(SB-1368)• CPUC, CEC and CARB must establish
greenhouse gasses emission performance standards that baseload generation must meet.
• Targeted directly at electricity industry• Can be thought of as “indirect” regulation of
greenhouse gas production.• Must have greenhouse gasses emission no
higher than natural gas, combined cycle powerplant levels
• Applies to long term procurements (5 years)• Applies to “baseload” (>60% CF)
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SB-1368: Events so far…..
• The CPUC adopted Emissions Performance Standard of 1100 lbs/MWh
• The CEC has almost adopted an Emissions Performance Standard of 1100 lbs/MWh.
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Nuclear/ Hydro/ Wind***
CC CGT Standard SS CGT Oil Coal
1100
1400
1,900
2,100
1000?
Comparative Emission Rates
Units of 1000’s pounds per MW-HR
Applies to Long term procurements (5 years)
Applies to baseload (>60% CF)
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15Source: Draft Greenhouse Gas Inventory Update, Cali forni a Energy Commission, 2001
Transportation Is California’s Largest Source of COCO22
Residential
9%
Industrial
13%
Transportation
58%
Electricity Generation
16%
Commercial
4%
California Fossil Fuel CO2
Emission Sources, 1999
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The Big Picture
• Need 170 MMT reduction
• Have 2.8 MMT from early measures
• Will get some from SB-1368
• Will get some from RPS • Total is maybe 36 MMT at this point
• Where will the other 135 or so MMTs come from?
• Answer: The biggest fruit. In 2004 cars were 166 MMT and electricity 100 MMT and growing every year.
For electricity this clearly means higher fuel efficiency and more renewable energy.
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The Battlefront: CEQA
• The California Environmental Quality Act (CEQA) is, and will become more, involved– Ex: AG Brown forces SF Bay Refiner to pay $7M for
mitigation of new CO2 emissions resulting from refinery expansion.
– Ex: Environmental intervenor insists that peaker project EIR inadequately addresses potential impacts from CO2 emissions.
• Clearly, CEQA “projects” now have to include an analysis of the potential for significant impacts to the environment through greenhouse gas emissions.
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The Big Picture: Implications
• Getting reductions from electricity generation will clearly mean raising fuel efficiency, developing and installing equipment to scrub CO2, and/or via trading.
• New generation will clearly be biased towards CC CGT as baseload and as much renewable energy as we can develop.
• Increased non-dispatchable renewable energy creates need for peakers which, in turn, pulls somewhat downward on fuel efficiency.
• This suggests that dispatchable renewable sources (hydro, geothermal, and bio-mass) may gain some preference.
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Uncertainty
• A project permitted between now and 2011 faces undefined restrictions and costs as the reduction measures and limits will not be established until then
• Any baseload plant that is not a natural gas combined cycle facility faces greater risk and uncertainty
• Financing these projects may prove to be difficult (not so far…)
• Even peaker projects face these potential burdens in the form of reductions in emission allowances.
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Summary
• Pressure on new sources of electricity to be CC CGT or better.
• Peakers (and all projects) face CEQA issues.
• Future limits under SB-32 may force all or some generators to offset or directly scrub CO2 emissions or prevent them from getting contracts or maintaining high capacity factor.
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Next Events
• More CEQA comments, challenges
• CARB rulemaking and AB-32 implementation.
• CPUC Phase II GHG rulemaking
• Outcome of vehicle emissions cases
• Outcome of EPA decision on whether to regulate GHGs (driven by Supreme Court Decision)
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Forums to track
• CARB: www.arb.ca.gov
• CPUC: GHG Phase II Rulemaking 06-04-009 www.cpuc.ca.gov/proceedings/R0604009.htm
• CEC: 06-OIR-1
www.energy.ca.gov/ghgstandards
• Federal EPA: GHG decision
epa.gov/climatechange/index.html