How much green will 'going green' cost California?

By: Cody Johnson
March 20, 2009

(bettertrades) - California has always been the first in new initiates. Californians never miss an opportunity to leave their mark on society. Today, as voices from around the planet warn of global warming, greenhouse gases, and rising sea-levels, we can expect to see California at the forefront. Green energy is the way of the future. But unrealistic timetables and stringent regulations applied to California's small businesses and utilities could turn a good thing into something bad. Both consumers and small businesses will pay up for the 'go-green' initiative.

In the fifteen years since the Kyoto treaty was signed, California has increased its greenhouse gas (GHG) emissions by more than 20%. This number is expected to double in the next fifteen years. California environmentalists and state officials have taken it upon themselves to lead the world towards a renewable-energy revolution. In fact, these people believe so vehemently in leading by example that in recent years they have pushed through several resolutions to slash percentages off their carbon footprint.

Last December, the California Air Resources Board (CARB) adopted a comprehensive plan to reduce greenhouse gases, characterizing it as a model-to-be for president Barack Obama. The 134 page plan, which was passed by unanimous vote, would implement the state's 2006 Global Warming Solutions Act (commonly referred to as AB32, or Assembly Bill 32). There are still regulations that must be drafted before the plan can go into effect, but California lawmakers are hastily pushing the bill forward. The rules associated with AB32 have met staunch opposition from a number of industries and interest groups - especially in the looming shadow of California's economic crisis. But California Governor Arnold Schwarzenegger has stated that California has no intention of backing away from its historic commitment to combating global warming because the economy has slowed. This bill would require drastic cuts in greenhouse gas emissions by 2020. It's hard not to love the ideas that are behind this new bill, however, the impions and impacts it can have on consumers and small businesses are daunting. AB32 targets essentially every sector of the economy: cars, buildings, refineries, landfills and even appliances. It also targets California electric utilities, whereas they must provide one-third of their power from renewable resources by 2020.

California law currently requires utilities to produce 20% of their power from renewable sources by next year, a law that hasn't been easy to meet thus far, considering that in 2008 roughly 12% of California's total power generation came from renewable sources. Consumers could see higher costs on their electric bills as increased dependence on renewable energy may spike future rates. Higher production costs include the need to upgrade transmission facilities. When compared to wind and solar energy, nuclear energy is cheaper to produce (Excluding upfront costs). Nuclear energy costs roughly 2 cents or less per kW-hour. Wind is about 6 to 11 cents per kW-hour and solar panels cost around 60 cents per kW-hour. That'll definitely make $5 gas look cheap.

Doing business in California is already very expensive. New requirements will make it even more costly, and small businesses may struggle to transition to the proposed mandates. AB32 requires that businesses reduce their carbon emissions 30% by 2020, and many small business owners are troubled by charges that would be imposed on businesses not in compliance. 52% of California businesses are classified as small businesses. These companies will be forced to purchase new items such as refrigerators, air conditioners, heating units and other costly appliances, all of which cost tens of thousands of dollars. It's likely that many of these companies would not be able to absorb such costs. Companies that have a small fleet of vehicles will be hit especially hard. AB32 also creates a CO2 auctioning system, or what is known as cap-and-trade.

In a cap-and-trade system, companies are given a set limit to the amount of carbon emissions they are allowed to produce. Companies that have not exceeded the set CO2 emission amounts are able to auction them off to the highest bidder. The highest bidder is then allowed to continue emitting high levels of CO2, so long as they can afford it. Basically, the buyer pays a charge for polluting, while the seller is rewarded for having reduced emissions more than what is needed. Because it's likely that many small businesses would be able to compete in such an auction, big industrial companies could quickly buy up all these credits and continue emitting pollutants, while the many other businesses who cannot buy the extra credits will be penalized for exceeding the set emission limit.

Small businesses do not have clear information about the energy reduction requirements, and business owners want to know actual costs, and whether energy savings will offset those costs over time. Since 2006, when Gov. Schwarzenegger signed the bill into law, gas prices have vacillated greatly, and some are worried that energy costs could sky rocket. This would wipe out any chance of payback, leaving businesses with no choice but to charge costumers for the higher cost.

As it has been said, this initiative is equally about the environment as it is about the economy. This will create jobs, proponents have said. But there's a small catch to that statement. For example, when companies go to purchase new refrigerators and other appliances, the people who deliver these new items would be designated as having a 'green' job. Besides jobs installing solar panels, only those with advanced degrees in industrial engineering would actually obtain real 'green' jobs.

California's electricity transmission infrastructure (the system that delivers electrical power to major cities, plasma TVs, central air-condition, and all the other appliances) has been around for over a century. This incredibly vast array of infrastructure did not suddenly spawn one day as an ambitious project that would instantly provide electricity to 36 million people. California's electrical infrastructure was formed over the course of an entire century.

On a side note, it is safe to say that Californian's know traffic. California has one of the worst highway congestion problems in the country. Polls among state residents consistently show that traffic is a top concern for them. California's traffic problems are only going to get worse as the state's population continues to grow. Yet very little is being done about it. There has been no concerted effort to fix their constipated roads. This has become a major drawback to attracting people to California. The real reason why no one is willing to invest in California roads is simply because there are no cultural affects that will spawn from it.

How is more power connected to a grid? Typically, a new power plant must be built and then connected to the grid in order to deliver its power. And just like freeways, where too much traffic can clog the system, transmission lines have a limit to the amount of traffic they can accommodate. Too much electricity being generated can create congestion, or what is known as electrical gridlock. Connecting new generators usually means expanding or upgrading existing transmission lines or creating an entirely new network. It can take up to 10 years to plan for and construct these transmission lines, and most of that time is might be spent obtaining rights of ways and working with local and state entities. That's about the same amount of time it takes to build a new freeway. The places where these natural resources are most abundant are far from population centers where the power is needed.

The reality is that the benefits California can obtain from wind and solar plants are limited. Wind plants have a capacity factor of about 30%, which means that a windmill is only providing electricity for around 8 hours in a 24 hour day. Solar plants only generate electricity during daylight, so their capacity factor is well below 50%. California still has a strong need for base-load power plants. The type that run 24 hours a day, 7 days a week, are not dependent upon a windy day. Nuclear plants are base-load plants with capacity factors over 90%.

California is left with a question. Do they want to terminate GHG emissions, or terminate their economy? If lawmakers really want to push this law through, forcing small businesses to make tens of thousands of dollars in upgrades while penalizing those not in compliance, then those business owners will leave the state. And when they go, so too will the workers.