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California Moves to Be First State to Limit Greenhouse Gases

August 31, 2006 at 6:25 PM EDT
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RAY SUAREZ: California’s action puts the state at the forefront of government efforts to cut down on greenhouse gases. This is the first broad, statewide cap on emissions in the country.

The bill mandates that industries, such as electric power plants, oil refineries, cement factories, reduce emissions by 25 percent over the next 14 years. The California Air Resources Board, the state agency that oversees clean air rules, will come up with the details of the plan and enforce it.

Will California’s new policy push the rest of the country? We get two perspectives. David Montgomery is vice president of CRA International, an economic consulting firm. His work focuses on energy and environmental issues.

And Dan Lashof, science director for the Natural Resources Defense Council’s climate center.

And, Dan Lashof, here we have California moving in a big way. When a state regulates the environment inside its own borders, how does that affect other states and what decisions they make?

DAN LASHOF, Natural Resources Defense Council: Well, Ray, this is a historic development. California is the 12th largest source of global warming pollution in the world, and they’ve established the first statewide enforceable limits on global warming pollution. That’s going to drive investment in new technology in California that will have an effect, not just in California, but nationwide and, indeed, globally.

And there’s no question that other states look to California as a model, are likely to adopt similar programs. We know already that Oregon and Washington have an agreement in the West Coast Governor’s Agreement to work together with California. We can expect them to adopt something similar.

Other states have a similar processes under way to develop programs to combat global warming. So Arizona, New Mexico, Montana, states along the northeast, will all look to this legislation as it’s implemented and are likely to adopt similar measures. And the federal government, as well, will very likely end up adopting a program very similar to this.

RAY SUAREZ: David Montgomery, do you share Dan Lashof’s assessment that this is a big deal? And what do you think the impact will be on other states?

DAVID MONTGOMERY, CRA International: I share Dan’s assessment that it’s a big deal; there’s no question that it is. California is a large and important part of the economy. But I think it’s a big deal for California because this is likely to impose some severe costs on the California economy and may not actually accomplish very much, in terms of dealing with the real problems of global warming and greenhouse gas emissions.

Those are global problems. A ton of carbon dioxide coming out of China has exactly the same effect on global warming and the state of California as a ton that comes out of California. That means approaching global warming and managing those risks really is a problem that requires international action and action by all countries.

The countries that matter most are really the developing countries, because they’re going to be responsible for most of the greenhouse gas emissions that we see over the next century. And California’s emission reductions that would come out of this program are just a drop in the bucket compared to what would be needed from those countries in order to put the world on a course toward really managing greenhouse gas risks.

Stimulating cleaner technology

Dan Lashof
Natural Resources Defense Council
There's just no reason to believe ... that throwing some federal R&D at technology is going to put in place the scale of technology that's needed to solve the global warming problem.

RAY SUAREZ: You began by noting the size of the California economy and the size of the population. Is California so big that, in order to do business there, other businesses that calibrate their standards, the kind of materials they use, the kind of processes they use, in order not to end up with a checkerboard of standards -- one for Arizona, one for Nevada, and so on -- will calibrate toward California and end up using that as a national rule of thumb?

DAVID MONTGOMERY: I don't think that's what we're likely to see coming out from the kind of caps that California is putting on. They're really not going to drive technology, because what California has done is embarked on a course of putting very strict limits on greenhouse gas emissions in the near future.

What we're seeing other places and what it takes to stimulate that technology development is not a set of standards. It's some serious funding for the kind of research and development that's needed to produce new ways of producing energy, new ways of generating electricity, and new ways of using energy more efficiently.

I don't think California is going to produce that, and it's partly because California is not that large a market, but it's mostly because what's required to stimulate that R&D is really a very long-term commitment to policies and, right now, some serious funding at the national and international level to get that R&D going.

RAY SUAREZ: Dan Lashof, a quick response, because you said this would open up a new world of investment and development?

DAN LASHOF: Absolutely, and that's why venture capitalists in California support this legislation, along with the Silicon Valley Leadership Group, PG&E. They know that you have to have a mandatory program to drive the kinds of investments that are needed to develop new technology that's needed to solve global warming.

There's just no reason to believe and no evidence from the last 12 years of looking to just R&D programs and voluntary initiatives that throwing some federal R&D at technology is going to put in place the scale of technology that's needed to solve the global warming problem.

Finding the money for innovation

Dan Lashof
Natural Resources Defense Council
The reality is that global warming is a real problem. ... We're moving towards national standards. And the first movers are going to have a major advantage, and that's what California is doing.

RAY SUAREZ: But you heard Mr. Montgomery say it's going to be expensive, it's going to put onerous burdens on. If you're sitting in a governor's mansion elsewhere in the country, if you're a member of a state senate elsewhere in the country, and you're watching California's new standards tied up in court, how does that push you toward making some decisions about your own state's future? And where does it push you?

DAN LASHOF: Well, I think that a lot of governors are going to be looking at California and saying, "That is where the high-tech, clean-tech investments are going," because they know there's a market for advanced technology for power plants, advanced technology vehicles. And a lot of states -- the governor of Illinois, the governor of Montana -- are saying, "We need to have a similar program here."

So I think that, while certainly there will be some significant investments needed, California stands to benefit greatly by being the leader in clean tech, just as they were in information technology in the past. They stand to gain from this type of investment.

RAY SUAREZ: But given the way things move around the globe -- and David Montgomery spoke about this just a minute ago -- don't you reap a benefit of California's standards if you stand pat and do nothing, if you're on the eastern border of the state, in Las Vegas or in Arizona?

DAN LASHOF: Well, no, for a couple of reasons. One, California has carefully crafted their law so that it applies equally to electricity, whether it's generated in California for consumption in California or outside of California and imported into California. So all players into the California market are going to be treated equally, and that will equalize a lot of those concerns about just shifting activity out of the state.

Secondly, you'd have to believe that global warming is a problem that will go away if we ignore it to think that other states and the federal government aren't going to adopt these standards in the near future.

So I think that the reality is that global warming is a real problem. It's causing severe harm to the United States and the rest of the world. We're moving towards national standards. And the first movers are going to have a major advantage, and that's what California is doing.

A drop in the bucket?

David Montgomery
CRA International
The R&D that we need for getting new forms of technology has to be much more dramatic, has to be focusing on breakthroughs, to give us something that's affordable to get much bigger emission reductions.

RAY SUAREZ: Is this something that only works or becomes effective if other states follow suit? Can California sort of hang out there all on its own with this new set of standards?

DAVID MONTGOMERY: No, it really can't, because, first -- it's not a set of standards. It's a cap on California's greenhouse gas emissions. And that cap would produce a reduction in emissions that people are estimating at 25 percent or so of what they would otherwise reach by 2020.

RAY SUAREZ: To get them back down to where they were in 1990?

DAVID MONTGOMERY: To get them back where they were in 1990. That's a drop in the bucket globally. So California is not contributing much to reducing global greenhouse gas emissions on its own, but it is bearing all of the cost of doing that.

And what Dan is leaving out is kind of the elephant in the room, which is this is going to produce an immense increase in the cost of electricity in California. It's going to produce an immense increase in the cost of transportation.

RAY SUAREZ: Why will it do that? How will it do that?

DAVID MONTGOMERY: It will do that because the only way to meet these limits on greenhouse gas emissions is through much more expensive ways of generating electricity. Right now, coal, natural gas, and a small amount of renewables are kind the lowest cost way of generating electricity. California already with that mix has about the highest cost in the country.

RAY SUAREZ: But Dan also said that this will unleash R&D to create new and better processes. You don't see that happening?

DAVID MONTGOMERY: Not in the time frame it's going to take to get to 2020. What we're going to be able to use for generating electricity between now and 2020 are the technologies we pretty much know about. There's no way to achieve those reductions with the technologies we have available without very substantial cost increases and without doing things like raising the price of electricity to drive down the demand for electricity.

The R&D that we need for getting new forms of technology has to be much more dramatic, has to be focusing on breakthroughs, to give us something that's affordable to get much bigger emission reductions. There's going to be high cost to do what California wants to do with the technologies we can have available between now and 2020.

RAY SUAREZ: Just before we close, let me quickly -- very quickly -- get an idea: Do you think that this cap is going to go into effect, that it's going to clear the courts and actually go into effect?

DAN LASHOF: Oh, absolutely, there's no question. California has the legal authority to do this, and this will go into effect.

RAY SUAREZ: And David Montgomery?

DAVID MONTGOMERY: I'm sure California has the legal authority for this cap. I think the crunch is going to come because California has put in no safeguards against the high cost and may find itself rethinking this very soon when it sees that.

RAY SUAREZ: Gentlemen, thank you very much.

DAN LASHOF: Thank you.