California’s Cleantech War – Prop 23

According to pick your favorite cleantech and carbon media outlet, California is at war. 

AB 32 is California’s carbon cap and trade law.   The law is most the way ready to implement, with the rulemaking in process now.  It’s aimed squarely at two goals, one, reduce California’s greenhouse gas emissions, and two, since such a reduction is largely symbolic without the rest of the world participating as well (CO2 is the only environmental pollutant that really doesn’t care where in the world it goes in or comes out, so is a truly global pollutant requiring a global response) continue California’s trend of environmental policy leadership, and be the beacon on the hill.

As it currently stands, AB 32 rules (as with most of these things the devil’s in the details, and the 2008 law takes a long time to work out the details) are supposed to be ready to go at the end of this year, and implemented in 2012.

Proposition 23 is an initiative on the ballot designed to indefinitely delay implementation of AB 32.  And for the record, if you don’t click that link at least read the Legislative Analyst’s analysis, I suggest you skip the vote.

The actual impact according to the California voter information guide would be to suspend part of the measures in the Scoping Plan (California’s overall GHG Plan), targeting about half of the emissions in the Scoping Plan:

“Various Climate Change Regulatory Activities Would Be Suspended. This proposition would result in the suspension of a number of measures in the Scoping Plan for which regulations either have been adopted or are proposed for adoption. Specifically, this proposition would likely suspend:

  • The proposed cap–and–trade regulation discussed above.
  • The “low carbon fuel standard” regulation that requires providers of transportation fuel in California (such as refiners and importers) to change the mix of fuels to lower GHG emissions.
  • The proposed ARB regulation that is intended to require privately and publicly owned utilities and others who sell electricity to obtain at least 33 percent of their supply from “renewable” sources, such as solar or wind power, by 2020. (The current requirement that 20 percent of the electricity obtained by privately owned utilities come from renewable sources by 2010 would not be suspended by this proposition.)
  • The fee to recover state agency costs of administering AB 32.

Much Regulation in the Scoping Plan Would Likely Continue. Many current activities related to addressing climate change and reducing GHG emissions would probably not be suspended by this proposition. That is because certain Scoping Plan regulations implement laws other than AB 32. The regulations that would likely move forward, for example, include:

  • New vehicle emission standards for cars and smaller trucks.
  • A program to encourage homeowners to install solar panels on their roofs.
  • Land–use policies to promote less reliance on vehicle use.
  • Building and appliance energy efficiency requirements.”

Because it is expected to scrap CARB’s proposed expansion of the California RPS to 33% of power from renewable sources up from the current goals of 20% (we’re not there yet), and the removal of the planned Low Carbon Fuel Standard, the entire cleantech sector is up in arms. 

Contrary to popular opinion, a Yes on Prop 23 probably won’t gut the cleantech sector – since cleantech is global and California’s cleantech companies are driven by programs well beyond its borders, since all the major programs Prop 23 affects haven’t actually been enacted yet and several key programs would be untouched (as well that the LCFS probably gets served by things other than cleantech biofuels anyway at least in the first years).  But it would cut into the future growth of renewables in the state a few years down the road, esp wind and large scale solar.

What it would definitely do is kill the nascent push in the US towards real cap and trade just a month ahead of the next round of international climate change negotiations in Cancun.  Quite frankly if California can’t deliver on its own cap and trade law, who else can?

And it would send a signal to the world that California voters are not quite as ready to be the beacon on the hill for environmental issues as they once were.

Will it hurt the economy and kill jobs if we don’t pass it and AB 32 continues?  Unfortunately it depends, with the pain more certain and likely nearer term, and the huge economic benefits more uncertain and likely longer term – though quite substantial in possibilities.  Yes, in the short term and medium term LCFS and 33% RPS and cap and trade will push up power prices and fuel prices in California, hurting consumers, and pushing some production out of the state (if other states and countries don’t continue to match the increased regulation).  That’s why it’s called alternative energy – it’s still more expensive.  But yes, it will probably simultaneously catalyze more venture capital investment (VC services is a big export for us), carbon markets investment (I know about two dozen companies that moved into California specifically because of AB 32 and its first mover advantage in US cap and trade and I helped bring 2 of them in myself), and certainly add some manufacturing and construction jobs in the cleantech sector. 

Net net, higher energy and manufacturing costs in California and an effective renewable and carbon quota mean economic losses in comparative advantage and to consumers in California.  But how much depends on exactly how good a job it does of catalyzing jobs in California for export or replacing business that we currently import to offset that.  And it is very, very hard to underestimate how good California’s environmental leadership has been at catalyzing US and global change.  Meaning the that comparative advantage loss may be short-lived (higher power prices from more low carbon renewables don’t cost California many jobs if its competitors adopt effective carbon prices as well), and if a new export industry and venture capital emerges to be a world leader (which basically pulls dollars from all around the world into Silicon Valley) it means more new California jobs gained than those lost from the comparative advantage shift, then all is good.

Unfortunately, some of that depends on how well CARB actually designs the final rules, and my big fear for California on AB 32 stems from how badly the state screwed up its last major energy deal – power deregulation.  Keep in mind Texas got that one right, and California’s was a fiasco (then as now blamed on the Texans – but I can buy 100% wind power for 11.4 cents a Kwh flat rate in Texas).

So, vote yes, and kill AB 32, and carbon leadership, and ding the rest of the cleantech sector, and you’ll probably never feel the impact in you pocket book (or realize it if you do).  But if you vote yes, you lose all moral right to claim cleantech and environmental leadership for the state.

Or vote no, and keep the state headed in the direction its going – leadership in renewables and carbon, and signal to the world that you care.  More than that, you tell yourself you believe that policy enabled innovation can change your fortune for the better, and outweigh the investment.  That’s technology and venture capital, and that’s what California does best. 

But please, vote for what *you* believe – not because the cleantech sector is screaming that you’re taking away their subsidy or because a couple of independent Texas oil companies are funding the no vote (they are, but to be fair, they provide a lot jobs and taxes to the state, California has not exactly gone out of its way play fair for them in the implementation of AB 32).  And don’t vote one way or the other just because you think it create or kill jobs – because which way the net outcome sways lies on our shoulders, too, from policy makers and CARB staff to the energy industry to the California consumer and business who will pay the final price and reap the final reward either way. 

Neal Dikeman is a founding partner at cleantech merchant bank Jane Capital, has help found or has interests in businesses in carbon (as founding CEO of Carbonflow), solar, superconductors, and green products, and personally stands to lose a lot of money if Proposition 23 passes and AB 32 goes down.

California Cleantech Attacked by Prop 23

California is World’s Third Biggest Oil Consumer

Over 95 percent of California transportation is fueled by petroleum. Electric light-rail, CNG buses and trucks, ethanol blended in gasoline make up the rest. No other state is more addicted to oil. By comparison, only two nations use more oil – China and the United States. California uses more oil than India, Japan, or Germany.

California wants to be more energy secure, have cleaner skies, lower healthcare costs for asthma, and reduce its own contribution to the global warming that threatens water shortage and failed crops. In 2006, a Republican Governor signed the nation’s most comprehensive climate legislation, AB32, shaped by both parties in the State Assembly and Senate. The law would increase refinery costs and encourage a reduced use of petroleum.

California’s efficiency and climate solutions are creating over a million cleantech related jobs as use of fossil fuel declines. According to recent scenario’s from the California Energy Commission, “Between 2007 and 2030, staff estimates total annual gasoline consumption in California to fall 13.3 percent in the low-demand case to 13.57 billion gallons, largely as a result of high fuel prices, efficiency gains, and competing fuel technologies. In the high-demand case, the recovering economy and lower relative prices lead to a gasoline demand peak in 2014 of 16.40 billion gallons before consumption falls to a 2030 level of 14.32 billion gallons, 8.5 percent below 2007 levels. CEC Report

Reducing the use of petroleum, of course, would cost oil companies billions. Texas oil companies are buying TV ads to encourage Californians to vote “yes” for Proposition 23 this November. The proposition would require the State to abandon implementation of a comprehensive greenhouse-gas-reduction program that includes increased renewable energy and cleaner fuel requirements, and mandatory emission reporting and fee requirements for major polluters such as power plants and oil refineries, until suspension is lifted.”

Prop 23’s biggest backers, Valero and Tesoro, are responsible for 16.7% of California’s emissions, according to the California League of Conservation Voters. Prop 23 will allow California oil refineries to avoid paying over one billion dollars for carbon emissions. Prop 23 is promoted as a jobs creation, but it’s a job killer. A recent UC study reported that California’s successful efforts to become cleaner have already created 1.5 million jobs with a total payroll of over $45 billion.

California leads the nation with 25,000 electric cars on the road and thousands of new electric charge stations scheduled for installation. By the end of the decade, California could have a million electric cars on the road. California’s Electric Transportation Report

66 leading investors representing $400 billion oppose proposition 23 as harmful to jobs and investment

Proposition 23’s opponents include 66 asset managers, venture capitalists and other investors collectively managing over $410 billion who issued a joint statement today opposing Proposition 23, the statewide ballot initiative to stop implementation of the state’s landmark clean energy law, AB 32.

Tesla electric cars, Better Place, and Bright Source Energy would not have achieved their success without the investment and guidance of VantagePoint Venture Partners, who has invested $1.5 billion in a portfolio of over 25 leading clean technology companies. Vantage CEO, Alan Salzman, sees a trillion dollar future in clean transportation, energy, water, lighting, and materials. On today’s conference call he stated, “We don’t want our cleantech future high-jacked. Is California going to stay in the game, or cede to China, India, and Russia?”

The oil industry attack on California carbon pricing will not stop cleantech, but it may stop the next 500,000 cleantech jobs from being in California. At stake is whether the next Google or Tesla is in the U.S., or in some other country. When asked whether putting a price on carbon would cost consumer’s money, Salzman responded, “This is about using technology to modernize ancient technology, such as the light-bulb. “ He sited that new LED only uses 15 percent of energy of old bulbs. We have cheaper and better technology. Flat screens that cost $15,000, now cost $400 due to learning curve and scale.

Kevin Parker, Deutsche Bank Climate Change Advisers has over $1.5 billion of their $8 billion invested in cleantech. He stated that a billion dollar wind or solar project only happens when investors or lenders have TLC– transparency, longevity, and certainty. A predictable price on carbon could make the next utility scale wind farm a good investment. No TLC, no renewable energy, no thousands of jobs – only consumers stuck with coal and gas generated electricity. If Prop 23 is defeated, major clean energy projects can move forward. He sees the stakes being much bigger than California. With our failure to support clean energy in the U.S. Senate, other states will either follow California’s cleantech lead, or they will give up on climate legislation. The U.S. will fall behind other nations, unless investors have reason to invest in U.S. cleantech.

Chris Davis, a director of Ceres and director of the Investor Network on Climate Risk, a network of 90 investors with assets exceeding $9 trillion focused on the business impacts of climate change agreed that investors could easily move money and jobs globally. He stated, “Cleantech is a major economic engine. Trying to repeal the future will not get us there.”

The U.S. can win or lose in a future that includes energy efficient materials, LED lights,electric cars, high-speed rail, wind power, solar power, smart grids and smart apps. If Californian’s defeat Prop 23 on November 2, Texas may be a few hundred jobs lighter and California a few hundred thousand jobs richer. California Cleantech Jobs