California in particular is a shining example of state-based leadership on climate, having established its own cap-and-trade mechanism — a key element in the Global Warming Solutions Act of 2006 (also known as AB 32) — that will soon be linked with the Province of Québec which will decrease overall greenhouse gas emissions and provide greater flexibility to California businesses. The state also has a Renewable Portfolio Standard of 33 percent by 2020 (the state utilities have already met 20 percent of its electricity needs through renewables), and a net metering program allowing customers to receive financial credit for power generating by their onsite system.
Thanks to the foresight of California policymakers and ample natural resources, the state leads the nation in solar projects, solar megawatts installed, and the average cost per watt of solar. In 2011, $1.9 billion was invested in the state to install solar on homes and businesses, and there are currently more than 1,500 solar companies working throughout the manufacturing chain in California. California even ranks second in wind installation, while also leading the nation in most wind capacity installed in 2011.
Clearly, Californians have much to be proud of when it comes to taking strong action to reduce carbon emissions and fighting the urgent threat of climate change.
This week, Southern California energy providers came to DC to highlight the state’s great achievements and recommend action that could be taken at the federal level needed to maintain long term energy reliability for California while at an event hosted by the Los Angeles Area Chamber of Commerce. The panelists called for three specific items of legislation that federal lawmakers can enact to not only support California policies, but create economic and environmental benefits for the entire country:
1. National Clean Energy Standard
In his 2011 State of the Union address, President Barack Obama proposed a federal “clean energy standard,” which would require utility companies to produce 80 percent of their electricity from no- or low-carbon sources by 2035. The Center for American Progress has recommended that an 80 percent clean energy standard should also include a requirement that 35 percent of electricity generation come from renewable sources and efficiency measures. This standard should be met by requiring a national target of 25 percent renewable electricity generation alongside a requirement that utilities reduce demand to save energy by 10 percent.
An analysis conducted by the Union of Concerned Scientists found that a national standard that requires all electric utilities to increase usage of renewable electricity to at least 25 percent by 2025 would create jobs, lower energy bills, and reduce harmful pollution. The analysis specifically found some 300,000 jobs would be created, $260 billion in new capital investment would occur with an additional $11 billion going to local communities from new property taxes, and consumers would save $64 billion in lower electricity and natural gas bills by 2025.
Last year, Senator Jeff Bingaman (D-NM) introduced the Clean Energy Standard Act of 2012. The Energy Information Agency projected that the legislation would reduce greenhouse gas emissions from the power sector 20 percent by 2025 and 44 percent by 2035.
2. Tax Credit Certainty
Key federal tax incentives — the production tax credit and investment tax credit — can help level the playing field for renewable energy in a market historically dominated by artificially low fossil fuel prices. These tax credits need to be extended long enough to give investors real certainty. For example, the PTC is set to expire at the end of 2013 and the ITC at the end of 2016. Each time Congress waits to renew these credits, financing gaps are created in the market.
3. Master Limited Partnerships for Renewables
If tax credits are not given long term extensions, then the panelists suggested Congress could make a provision in the tax code allowing energy-generation and transmission companies form master limited partnerships (MLPs). Felix Mormann and Dan Reicher, both at Stanford’s Steyer-Taylor Center for Energy Policy and Finance, recently wrote:
Master limited partnerships carry the fund-raising advantages of a corporation: ownership interests are publicly traded and offer investors the liquidity, limited liability and dividends of classic corporations. Their market capitalization exceeds $350 billion. With average dividends of just 6 percent, these investment vehicles could substantially reduce the cost of financing renewables.
Senator Chris Coons (D-Delaware) has written a bill entitled the Master Limited Partnerships Parity Act, which if enacted, could level the playing field and open up critical financing to the renewables sector.
Sea level rise, increased temperatures, more extreme hot days, and less winter precipitation are all climate driven changes that affect the health of California’s environment and citizens. If greenhouse gas emissions continue along its business-as-usual scenario projection, Southern California, specifically, will experience longer heat waves, high ozone conditions, and the elevation of storm surges that will cause severe flooding and coastal erosion. Indeed, researchers at Oregon State University and Harvard University recently published a report that concluded the Earth’s rate of warming since 1900 is 50 times greater than the rate of cooling in the previous 5,000 years.
California has made its move to prevent climate change from occurring by aggressively cutting emissions and deploying renewable energy. It’s time for Washington D.C. to follow their lead.
Matt Kasper is a special assistant for energy policy at the Center for American Progress.