September 1, 2006
California Plan to Cut Gases Splits Industry
By JAD MOUAWAD and JEREMY W. PETERS
[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
nations 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 its not even
close, Mr. Darbee said. Climate change is a problem.
California is once again at the forefront of the nations 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
outsiders perspective to the inbred utility industry, cuts across those
lines, pointing to a potential advantage for business in California:
The incentives really arent 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 worlds 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 its 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
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
No system we have works perfectly, he said. The cap-and-trade system in
Europe has some flaws because they didnt 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 1960s 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
worlds 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, Californias 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. Californias 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
But the backers of the law said that developing new energy sources and
emphasizing efficiency would actually help expand Californias 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 thats going to serve both
the business interest and the publics 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 dont change, they lose, they die, he said. I do not see
it as a system thats 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, its 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 doesnt 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 dont want to sell gasoline in
the sixth-largest economy in the world, but I guarantee you wont 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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