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How Much Will Proposition 23 Hurt Renewable Energy?

New legislation might slow green technology investment, but other laws could help pick up the slack.
September 28, 2010

A proposition on the November ballot in California would suspend the state’s major greenhouse-gas emissions law. If it passes, it could delay or eliminate many proposed renewable-energy projects in California. However, its impact is difficult to predict because other legislation will help spur investment in many projects and green-tech startups.

Building solar: Workers for the solar thermal company eSolar, based in Pasadena, California, install mirrors at a solar thermal plant in Lancaster, California. Proposition 23 could put similar planned projects in jeopardy.

Proposition 23 would suspend a 2006 law aimed at reducing California’s greenhouse-gas emissions to 1990 levels by 2020. The law, known as AB 32, authorizes a wide range of rules and regulations designed to meet this goal. The main part of the law is a cap-and-trade system under which affected businesses would have to either reduce their own emissions or buy emissions allowances from other companies that have reduced their emissions.

The law is also the basis for a “low-carbon fuel standard” that requires refiners to change their mix of fuels to reduce greenhouse-gas emissions, as well as a “renewable electricity standard” requiring that 33 percent of the electricity generated by public and private utilities come from renewable sources by 2020.

Proposition 23 would suspend the implementation of AB 32, and the rules and regulations connected with it, until the unemployment rate in California drops from its current level (about 12 percent) to 5.5 percent for four consecutive quarters. This has only happened three times in the last 40 years, and the state’s Legislative Analyst’s Office doesn’t expect it to happen again in the next five years. The proposition’s major supporters include oil refiners Tesoro, Valero, and Flint Hills Resources. It is opposed by groups such as the National Resources Defense Council.

By invalidating regulations that require utilities to get a third of their electricity from renewable sources, Proposition 23 could put a long list of renewable energy projects in jeopardy. This list includes several very large solar-thermal power plants proposed for installation in the desert. Together, these projects would generate nearly 5,000 megawatts of power. That’s about as much peak power as five nuclear reactors, although nuclear power plants generate more total electricity since they run both day and night.

It’s not clear, however, how many projects will be affected. Some could still see enough demand because of an earlier renewable electricity standard that requires public utilities to get 20 percent of their electricity from renewable sources as of this year. There’s also a good chance that a 33-percent requirement will be enacted separately by the state legislature, says Michael Wara, a law professor at Stanford University Law School. He says that California voters have consistently voted in favor of provisions that directly support renewable energy, even when they don’t support “more abstract” rules such as limits on carbon-dioxide emissions.

It’s unclear what impact suspending the two other major AB 32-related rules and regulations will have. Stopping the cap-and-trade program and the low-carbon fuel standard will reduce incentives for startups offering low-carbon energy and biofuels technologies. But some venture capitalists say that the companies they have invested in were founded on the presumption that there would be no such cap-and-trade system, and so their business plans don’t depend on there being one. What’s more, federal biofuels mandates and renewable-energy incentives in other states and countries will continue to provide a market for these companies.

For example, 28 other states have their own renewable electricity standards. If Proposition 23 makes California less attractive for renewable energy, “there are still opportunities for us to build in Texas, Brazil, China, or India,” says David Berry, a partner at Flagship Ventures in Cambridge, Massachusetts.

Incentives for electric and plug-in hybrids cars will remain in place in California, because emissions requirements are supported by laws other than AB 32.

Overall, however, there is concern that if Proposition 23 passes, it will discourage investors from putting their money into new energy technologies by adding to the growing uncertainty about energy policy in the United States. One of the biggest challenges for government is convincing investors that incentives will remain in place long enough for them to earn a profit, and suspending existing regulations won’t help with that. “If Proposition 23 passes, it will raise questions about the credibility of any rules in this area,” says David Victor, a professor at the School of International Relations and Pacific Studies at the University of California, San Diego.

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