CCST Releases First Report in California's Energy Future Policy Project
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The California Council on Science and Technology (CCST) has released the first report in a new series which analyzes how California can effectively construct a policy
framework to help the state meet its ambitious greenhouse gas (GHG) reduction goals over the coming years. The California's
Energy Future - Policy (CEF-P) project follows on CCST's landmark California's Energy Future study, which explored the technical
feasibility of California reducing its GHG emissions to 80% below 1990 levels by 2050 while still accommodating projected
growth in its economy and population.
"Understanding the technical aspects of energy technologies is only the first step towards
building a sounder energy future for California," said CCST Council member Jane C.S. Long, Former Principal
Associate Director at Large and Fellow in the LLNL Center for Global Strategic Research for Lawrence
Livermore National Laboratory, who is the CEF-P committee chair. "This study will help connect the technical findings of the CEF project
with the realities and concerns of policy and implementation."
The report "Policies for California's Energy Future: Electricity Pricing and Electrification for
Efficient Greenhouse Gas Reductions" is authored by Lee S. Friedman, an economist and Professor of
Public Policy at the University of California at Berkeley. It discusses pricing policy modifications
that will help to make decarbonization and electrification decisions effectively and efficiently. As
the report notes, California needs to adopt pricing reforms as part of an integrated strategy to
achieve its long-term goals of reducing GHG emissions. Friedman says it is particularly critical
that we smoothly transition beyond the 2020 goal of AB32 to continue reductions in the 2020-2030
"The better alignment of prices with costs is one key element to improving pricing policies," notes the report. "Costs
include not only the private costs incurred by individuals and businesses that provide goods and
services, but also costs to society - for example, the harm from air pollution. When air pollutants
like GHG emissions are completely unpriced, a distortion in the market results."
The report identifies key recommendations for policy changes that would help to implement electrification in California:
Link California's carbon market with other jurisdictions that have comparable reduction goals and programs.
When California began designing its cap and trade program, it was with the intent that the program would
become linked or integrated with larger programs that included other jurisdictions having
similar programs and goals. This is critical for achieving necessary global GHG reductions.
Create more certainty in the minds of investors about the GHG reductions that will be required in California beyond 2020.
AB 32 only specifies reductions through 2020, resulting in too little long-run investment in GHG reducing actions, including research and development
aimed at commercializing innovative methods for future use. If the state wishes to lessen this
uncertainty and encourage investment, it should act soon to clarify state efforts to reduce
GHG emissions beyond 2020.
Reform legislation to allow carbon price signals (higher electricity prices) to pass through to residential customers.
The current system, devised in the wake of the 2001 electricity crisis, essentially prevents the CPUC from giving any carbon
price signal at all to the 10 million households in its residential sector, thus completely eliminating
a consumer's natural tendency to conserve energy in the face of higher energy rates. Separate annual
or semiannual dividends can be provided as compensation for the higher rates.
Transition California's electricity customers to time-varying marginal-cost based rates.
Current electricity rates for all but the largest customers do not vary with time, whereas the cost of service varies by
many multiples over the hours of any single day as well as over seasons. This is a major deterrent to vehicle electrification,
since consumers pay the same rates for recharging overnight as they do during the day despite the fact that the marginal
cost of providing nighttime electricity is currently approximately six times lower than daytime costs.
"The report's recommendations seem to be gaining some traction with
policymakers," Friedman noted. For example, the state legislature has just passed AB 327,
which will allow the CPUC to pass on the carbon price signals. In addition, the Air
Resources Board, in its recently-released draft update to the Scoping Plan,
provides a recommended 2030 interim GHG emission reduction target, and the
Governor has taken the lead in promoting new and innovative partnerships
between California and other jurisdictions by signing an agreement with China to
share information and personnel related to state-run carbon trading systems,
allowance auctions, and other practices involved in regulating and
controlling carbon emissions. The CPUC is also
considering methods to expand the use of time-varying rates within the
state. "This is a promising beginning to the important work that California
policymakers have before them in order to lead us beyond 2020 to an
environment that is healthy and sustainable for the long-run," said
Additional reports are planned addressing other policy aspects of building a long-term energy strategy capable
of meeting California's emissions goals, including carbon capture and storage and efficiency.
"We believe that
this pricing policy report presents a constructive approach towards building policies that will
effectively meet California' future energy needs," added Long.