Transcript Potential impacts on the Siting of New and of Repowered

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]
Overview of AB-32 and SB-1368
CO2 Reduction Measures and Emission Limits
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
Baseload Electricity Performance Standards
SB-1368
• 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
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?)
AB-32
– 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?
SB-1368
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
What AB-32 requires CARB to do:
• 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.
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.
The Monster
1990:  440 Million Metric Tons
(MMT)
2004:  500 MMT
2020 Projected: 610
CO2
The Task: Reduce the emission
rate by about 170 MMT in 16
years (includes reductions to
counter further increases)
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
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
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.
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.
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)
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.
Comparative Emission Rates
Units of 1000’s pounds per MW-HR
Applies to Long term procurements (5 years)
Applies to baseload (>60% CF)
2,100
1,900
1400
1100
1000?
Nuclear/
Hydro/
Wind***
CC CGT
Standard
SS CGT
Oil
Coal
Transportation Is California’s Largest Source of CO2
Commercial
4%
Electricity
Generation
16%
Industrial
13%
Residential
9%
Transportation
California Fossil Fuel CO2
Source: Draft Greenhouse Gas Invent ory Update, Cali forni a Energy Commi ssi on, 2001 Emission Sources, 1999
58%
15
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.
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.
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.
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.
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.
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)
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