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: predictability.
“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 caps.”
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 effect.
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 disadvantage.”
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 plan.
“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, said.
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 that."
And if California succeeds, Mr. Doerr said, the rest of the nation will follow.
“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.”
source: http://www.nytimes.com/2006/09/01/business/01energy.html?_r=1&oref=slogin&pagewanted=print 31aug2006
California's agreement to cut emissions tied to global warming is likely to boost a resurgence in Gov. Arnold Schwarzenegger's popularity, many political pundits say, potentially making it more difficult for Democratic challenger Phil Angelides to unseat him in November.
The same day that the governor agreed to the deal with the state legislature's Democratic leadership, a new poll of likely voters by the Public Policy Institute of California showed him with a 13-point lead over Mr. Angelides. The deal may give Gov. Schwarzenegger a decisive lead over his rival -- and possibly position him for a U.S. Senate run down the line -- because environmental issues resonate with many California voters, some political observers say. "It's not game over for Angelides, but he's now got to shore up his support among rank-and-file Democrats," said Mark DiCamillo, director of the Field Poll, a San Francisco polling firm.
Under the deal announced Wednesday, California will mandate a reduction in the state's emissions of gases contributing to global warming to 1990 levels by 2020. The cut would target the state's biggest industrial emitters of greenhouse gases, such as power plants, oil refineries and cement factories.
But the deal also holds risks for the governor. Conservative Republicans could revolt over this pact and others he has made with the Democratic-dominated legislature. That could deprive the governor of support he may need for re-election if he fails to marshal enough Democratic voters in a state dominated by that party.
"I think the race will get much closer, and it will get down to a question of how much his moves with the legislature have hurt him with his base," said Kam Kuwata, a Democratic political consultant in Los Angeles. "Also, he could get swept out on a national rejection of Republicans."
Still, Mr. Schwarzenegger is riding high for now, having mostly rebounded from a decline in polls when he embarked on an unsuccessful campaign last year to trim the power and influence of state Democrats. Some political observers say Mr. Schwarzenegger could eventually make a successful run for the U.S. Senate. In a recent interview, however, Mr. Schwarzenegger was adamant that he would never take a position that would make him leave his adopted home state.
This year, the governor has embraced Democratic lawmakers on many issues. Over the past few weeks, he has agreed to sign bills on Democratic-backed issues like raising the state's minimum wage and providing prescription-drug relief to the uninsured and underinsured. He also forged a deal to put a mammoth bond issue on the California ballot in November to patch up the state's crumbling roads, bridges and other infrastructure.
The bipartisan cooperation has won back many of the governor's old supporters, as well as more Democrats, some pollsters say. In the Public Policy Institute poll, 82% of likely Republican voters said they planned to re-elect the governor to a second term, along with nearly half the independent voters and almost a fifth of Democrats. Mr. Angelides, the state's treasurer, won support in the poll from just 58% of likely Democratic voters -- too little, pollsters say, to overcome the governor's current advantage unless Mr. Angelides increases support rapidly. The poll of 989 likely voters has a margin of error of plus or minus three percentage points.
Strategists for Mr. Angelides, who won a hard-fought campaign in the Democratic primary to take on Mr. Schwarzenegger, say they aren't worried and plan a vigorous campaign after Labor Day. "This is a guy who switches position every 10 seconds in order to curry favor with the voters, and we are going to show that," said Bill Carrick, chief strategist for Mr. Angelides. "I think we are going to see a real dogfight here."
--Christopher Cooper contributed to this article.
California faces a tough obstacle in its efforts to curb global warming without driving away business: Success requires joining other countries, or persuading other states or the federal government to join it.
Leaders of the state Legislature and Gov. Arnold Schwarzenegger have agreed on a plan under which California would mandate a reduction in the state's emissions of the gases contributing to global warming to 1990 levels by 2020. The bill cleared the Legislature yesterday, and Gov. Schwarzenegger has indicated that he will sign it into law.
Most groups representing big industry in California remain opposed to the plan, arguing it will raise production costs and hurt the competitiveness of the state's businesses. But some California businesses expressed support for the push, arguing that restrictions on global-warming emissions across the U.S. are increasingly likely and that California companies will benefit by starting now to prepare.
"From a business perspective, the sooner we begin working on this problem, the less dramatic will be the impact on business," said Peter Darbee, chief executive of PG&E Corp, whose Pacific Gas & Electric Co. unit is a major California utility. PG&E has an additional reason to be supportive: Most of the electricity it sells comes from natural gas and nuclear and hydroelectric power, a portfolio that emits far lower levels of greenhouse gas than does coal.
California has long been a national environmental bellwether, prompting other states to follow its regulatory lead. A growing number of states are planning greenhouse-gas rules of their own, and officials in several of those states said California's move would give their efforts a boost.
"When we have a neighboring state that is taking a similar tack to us, it's very helpful," said Bill Drumheller, who works on global-warming issues at Oregon's Department of Energy. Oregon is planning rules limiting greenhouse-gas emissions from power plants.
California officials said they hope to entice other states and the federal government to follow its lead in regulating global-warming emissions. Though California is the world's sixth-largest economy, it accounts for only about 2% of the world's annual global-warming emissions.
"None of it matters or works if other states or nations don't copy us, because changing greenhouse-gas emissions is not meaningful unless we do it for the whole planet," said Catherine Witherspoon, executive officer of the California Air Resources Board, the state agency assigned to figure out how to implement California's plan.
There is another reason California is hoping it won't have to go this road alone: Persuading other states, or the federal government, to join suit will likely lighten the financial burden on California businesses.
Central to several nascent efforts around the world to regulate greenhouse-gas emissions is a "cap and trade" system. Under such a system, a government mints a certain number of emission permits, each corresponding to a ton of carbon dioxide, the main global-warming gas. It distributes the permits among the facilities -- generally factories whose emissions it is regulating. If the factory's owner decides it is too expensive to comply with the cap by minimizing emissions at the factory itself, the owner can buy extra permits from other businesses on an emission-trading market. Such a trading system is under way in Europe, where countries have agreed to emission caps under the Kyoto Protocol, the international global-warming treaty.
The idea behind an emission-trading market is to make it as broad as possible; the more companies that are trading under the system, the theory goes, the likelier the market is to find cheaper ways to curb emissions, thus reducing everyone's cost of compliance. But assembling such a trading system raises thorny issues. Among them: which industries will be covered by the caps, how to structure the rules so they don't encourage companies simply to flee to locations where emissions aren't capped, and how to verify that companies aren't emitting more than they say they are.
--John J. Fialka contributed to this article.
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