California, as one of the pioneers in reducing carbon emission which has panels of ambitious policies to reduce the carbon dioxide in this world. Back in 2002, California has set up California air resource board to prepare the system of protecting the air.
And finally in 2006, the government of California has been able to launch the Global Warming Solution Act. It contains several different measures, such as renewable portfolio standard(RPS), Renewable Energy Production Credit(REPC) trade and cap, offset, manure management, forestry and landscape gas capture. In this blog, I only explored something about the RPS and cap-and-trade policy.
Renewable Portfolio Standard
An noticeable measure to reduce carbon emission is called Renewable Portfolio Standard (RPS). This policy was first initiate in 2002, by California bill SB1078, and was said to be the most ambitious GHG control policy in USA. It aimed to make all electricity utility procure 20% of renewable energy in their inputs. Following 2002, in 2006, BA32 bill produced that by 2020, the percentage of renewable resource will be reach to 33% which is a very high standard, exceed the standards in other states like Oregon and Minnesota.
Renewable portfolio is more like an indirect subsidy. Rather than costing the money of taxpayer, the government allows the new energy technique to compete with each other. And the lowest cost one will become renewable energy portfolio provider. Thus, this may push the invention of better renewable fuel or new renewable recourse, on the condition that California and other many states also has RPS, so there’s no way to export dirty energies and import renewable fuel to circumvent this regulation.
In this sense, I believe the renewable portfolio program is relatively more cost efficient. Rather than direct giving out money, it encourages the competition in the market and also allows electricity companies switch other sources, if the current renewable energy is too much costly.
Government also applies cost control policies on RPS, see detail policies in below[i]:
The main findings from cost control policies of RPS are significant. As we can see from the above, more than half of the approaches to control cost are not as good as expected.
1. The cost cap are political determined but not base on economic side of view, hence it will conflict with the goal of policy.
2. Cost limit are ambiguously defined.
3. Insurance fee: the cost limits may create uncertainty in the market, the procurement fee might be unavoidable. A more precisely defined cost control policies may avoid unexpected social warfare cost and support for the environmental protective policy.
An research (Bushnell & Wolfram, 2008) analyzed the social warfare cost at different levels of RPS. RPS will significantly increase the electricity retail price, at the level of 5%, there’s total customer loss. At 20% level, both customer and producer are losing, only with higher price, producer has smaller loss compare to customer. But, there’s a footnote state below the graph that, the economic surplus measures do not include any environmental benefits resulting from the policy. For my level of knowledge, it is hard to define the effect of RPS. Since I can perceive the customer loss as a donation to the environment protection. Other evidence shows, at least, this policy is effecting the industry: 60% more of non-hydro renewable capacity are added within the program by 2002, and by 2006, it became 76%. In 2012, the three biggest IOUs (Investor Owned Utilities) are now serving 20% of their electricity retail sales with renewable power. [iii]
As we are encouraging by these positive information, remembering that California has already set out its another goal: to reach 33% of renewable energy use in 2020. So, I raise my doubt that is California capable of doing that?
From the reading of researches, I found that the main obstacle for California is the money. To support for 2020’s target, 7.2[iv] billions of dollars will be used as upgrading infrastructures (table 1). An energy analysis comment that, With large cities struggling, utilities struggling, people struggling, social services being cut, she said that she believes the state should keep the goal but understand that California’s infrastructure ‘is not prepared for that much renewables.’ However, California has already has budget deficit of 16 million in January 2012, which means more cut will be made in order for the budget. Especially, this state has over 10 percent unemployment rate and a real estate market that has lost 35% of its value. Personally, I doubt for the success of the next goal. Maybe California can slow down a little bit, at last, to rescue the world is a huge responsibility.
Cap and Trade
This method is in fact the tradable emission, government will give out free credit of emission allowance, which account for 90% of the industry emission. And the rest of emission amount can only be bought. Unlike other rigidly restrictions, cap and trade as a market based policy, do not specify amount of emission for which industry or which company or how much they should emit, which may confer the society a larger social benefit and give the resources best allocation.
Compare to RPS, a paper ( Fischer & Newell, 2004) found out that one seventh of social warfare costs to reduce 5.8% carbon emission[v]. Here is the comparison of social welfare costs between cap and trade and RPS.
But it also has some disadvantages. By putting a cap on the emission of plants within California, it may drive those high emit plant move out of California, and also the current major providers of electricity and CO2 are come from outside of Californian. So it can be circumvent by simply importing from outside of state But the world don’t care where the Green House Gas come from, but what is the amount of it. So no matter how effective this measure is, it may not archieve its ultimate goal, to save the world. This requires collaboration of states around California or even the world.
To make a conclusion, the older ways such as a renewable energy production tax credit lowers electricity price but at the expense of taxpayers and thus limits its effectiveness in reducing carbon emissions. And it also is less cost-effective than a portfolio standard. However, in my mind the most effective ways should be the cap and trade policy, it is less costly and better at promoting new energies.
table 1
http://www.ucei.berkeley.edu/PDF/csemwp166.pdf
[i] http://climatepolicyinitiative.org/wp-content/uploads/2012/06/Limiting-the-Cost-of-Renewables-Lessons-for-California.pdf
[ii] http://www.renewableenergyworld.com/rea/news/article/2012/08/experts-weigh-in-will-california-meet-its-rps
[iii] http://www.cpuc.ca.gov/PUC/energy/Renewables/index.htm
[iv] http://www.renewableenergyworld.com/rea/news/article/2012/08/experts-weigh-in-will-california-meet-its-rps
[v] Fischer Carolyn and Richard Newell. 2004. Environmental and Technology Policies for Climate Change and Renewable Energy. Discussing paper 04-05. Washington, DC; Resource for the future, April.