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California Plan to Cut Gases Splits Industry

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  • binstock@peakpeak.com
    September 1, 2006 California Plan to Cut Gases Splits Industry By JAD MOUAWAD and JEREMY W. PETERS http://www.nytimes.com/2006/09/01/business/01energy.html
    Message 1 of 1 , Sep 1, 2006
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      September 1, 2006

      California Plan to Cut Gases Splits Industry


      [foto] David McNew/Getty Images - Emissions from installations like this
      Chevron refinery in El Segundo, near Los Angeles, might be susceptible to
      25 percent curbs by 2020.

      After becoming chief executive of PG&E last year, Peter Darbee met with a
      large number of leading climate scientists, he said, to make up his own
      mind about global warming.

      As a result of his wide inquiries, PG&E, the parent of the Pacific Gas and
      Electric Company, which serves Northern California and is one of the
      nation’s largest energy utilities, broke away from the industry pack to
      support sweeping efforts to reduce the greenhouse-gas emissions that are
      widely blamed for global warming.

      “The evidence in the scientific community is lopsided — it’s not even
      close,” Mr. Darbee said. “Climate change is a problem.”

      California is once again at the forefront of the nation’s environmental
      policy, with a far-reaching pledge to curb carbon emissions by 2020. But
      the deal struck on Wednesday between Democratic legislators and the
      Republican governor, Arnold Schwarzenegger, has divided businesses and
      industries in California.

      While high-technology companies have lined up behind the move, arguing
      that it will put California at the forefront of alternative energy
      development, most of those representing basic industries contend that it
      will retard the economy, force energy-intensive businesses out of state
      and increase costs for all Californians.

      Mr. Darbee, a former investment banker and financial expert who brings an
      outsider’s perspective to the inbred utility industry, cuts across those
      lines, pointing to a potential advantage for business in California:

      “The incentives really aren’t there for the creation of new technologies
      and investments to reduce carbon dioxide unless mandatory caps are put in
      place,’’ he said. “Now, that creates an element of certainty.”

      The California plan, which won final legislative approval yesterday but
      faces a battle in the courts before it can go into effect, calls for a 25
      percent cut in carbon dioxide emissions by 2020. It envisions controls on
      some of the largest industrial groups — including utilities, oil
      refineries and cement plants.

      While many of the details remain to be worked out, the law will include a
      mixture of mandatory regulations, incentives and market-based mechanisms,
      including a so-called cap-and-trade system allowing companies to buy and
      sell carbon allowances. The California Air Resources Board has until 2009
      to draft regulations that are to become mandatory in 2012.

      “The United States is the world’s biggest carbon emitter, and California
      is a big part of it,” said Jim Marston, who runs the state global warming
      initiative at the activist group Environmental Defense, which has played a
      big role in California and elsewhere in promoting alternative energy use.
      “The key aspect of the law is that it’s multisector and it imposes hard

      Given a lack of national policy toward global warming, local and state
      authorities are increasingly taking the matter into their own hands,
      creating a patchwork of competing rules that will be potentially harder
      for businesses to navigate. Seven states in the Northeast, for example,
      have proposed to reduce carbon emissions from power producers 10 percent
      by 2019.

      Mr. Marston acknowledged that a system adopted by the European Union in
      response to the Kyoto Protocol to curb global warming gases had not been
      very effective.

      “No system we have works perfectly,” he said. “The cap-and-trade system in
      Europe has some flaws because they didn’t do a great job with the
      baseline. California will learn from what went wrong in Europe.”

      California has had a long tradition of leading the way in environmental
      regulations that in time are adopted by other states and cities across the
      country. The federal Clean Air Act of 1970, for example, originated in
      efforts starting in the 1960’s to limit smog in Southern California.

      In 2004, the state became the first to adopt regulations intended to limit
      greenhouse gas emissions from automobiles. Several states in the
      Northeast, including New York, have followed suit. A coalition of the
      world’s largest automakers, which opposed the regulations from the
      beginning, is suing many of these states to prevent the laws from taking

      The restrictions, scheduled to go into effect on 2009 model vehicles,
      roiled the global auto industry because automakers would have to increase
      fuel economy to meet them.

      Unlike smog-forming pollutants, carbon dioxide and other emissions from
      vehicle tailpipes that are linked to global warming cannot be filtered.
      Reducing those emissions would therefore require redesigning engines,
      which would increase the cost of building a vehicle.

      But for Jack Stewart, the president of the California Manufacturers and
      Technology Association, an industry trade group, California’s go-it-alone
      approach risks harming the competitiveness of the economy.

      “We think it is draconian,’’ he said, “for the state of California to put
      these California-only rules when companies outside of the state will not
      have the same restrictions and costs imposed on them.”

      It is not clear how California will accomplish its goals. Companies have
      traditionally found that reducing their carbon emissions could be best
      achieved by improving energy efficiency. Large corporations, including
      I.B.M., DuPont and Johnson & Johnson, have found that steps to curb energy
      use through efficiency gains not only cut their power bills but often led
      to overall gains in productivity.

      Mr. Stewart, though, argued that such “low-hanging fruits” were harder to
      find in California today because the state had long been at the forefront
      of the energy-efficiency effort. “California’s energy costs are the
      highest in the country,” he said. “Most manufacturers who use a lot of
      energy have already done a lot of conservation. This law puts us at a huge

      Myron Ebell, director of energy policy at the Competitive Enterprise
      Institute, a conservative research group in Washington, and a prominent
      critic of efforts to curb global warming, also dismissed the California

      “We cannot reduce our carbon emissions by making ourselves poorer,’’ he
      said. “That is not acceptable in a democratic society. It might work in
      North Korea, but it will not work here. If global warming turns out to be
      a problem, we have to work on technological changes. All of that is
      something California has tremendous capacity to do — not by going on an
      energy diet.”

      But the backers of the law said that developing new energy sources and
      emphasizing efficiency would actually help expand California’s economy.

      They cited a recently published study by researchers from the University
      of California, Berkeley, which argued that cutting carbon emissions back
      to 1990 levels would add $74 billion in value, or 3 percent, and
      contribute to the creation of 89,000 jobs.

      “There is a great deal of energy efficiency still left in California that
      will produce both lower greenhouse gases and lower the consumption of
      fossil fuels,” one of the Berkeley researchers, Alexander E. Farrell,

      Jim Wunderman, president and chief executive of the Bay Area Council, a
      coalition of businesses in and around San Francisco, said the new
      emissions legislation would allow California businesses to be at the
      forefront of developing energy technology, much as they were with personal
      computers, semiconductors and the Internet.

      “We think this is going to contribute to a boom in industries focused on
      alternative energy development,’’ Mr. Wunderman said. “Enlightened
      businesses can participate in an economic boom that’s going to serve both
      the business interest and the public’s interest."

      And a leading venture capitalist, John Doerr, a partner in the firm of
      Kleiner Perkins Caufield & Byers in Palo Alto, said the new rules would
      force corporations to innovate.

      “The folks who don’t change, they lose, they die,” he said. “I do not see
      it as a system that’s going to encourage businesses to leave California."

      Still, adapting to such new regulations should be easier for companies
      that make semiconductors and computer keyboards than for those that make
      cement or refine oil. Mr. Doerr predicted that most industries would come
      around in the end because they would be squeezed by the costs associated
      with not complying.

      “Manufacturers are going to go green,” he said.

      There is already evidence of this in the oil industry, he continued, with
      companies investing in alternative forms of energy like biofuels. And
      technology companies are in a strong position to innovate.

      “High-tech industries thrive on innovation and new technology,” Mr. Doerr
      said. “Already, it’s even easier for them to be nimble, and shift and
      respond to different market mechanisms.”

      In the end, he predicted, it will make more sense for most businesses to
      stay and adapt.

      “It doesn’t matter where they make this stuff, ’’ Mr. Doerr said, “because
      if you put the gasoline refinery across the border in Nevada, the same law
      applies. If you want, you can decide you don’t want to sell gasoline in
      the sixth-largest economy in the world, but I guarantee you won’t do

      And if California succeeds, Mr. Doerr said, the rest of the nation will

      “Every new, important, environmentally sustainable policy has come from
      California and spread to other states,’’ he said. “Then the federal
      government decides we ought to consolidate this.”

      Copyright 2006 The New York Times Company

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