April 2, 2010

VX2010 Plenary Speakers Define Market Success

The following excerpts from the luncheon plenary session at VX2010 features a diverse series of policy and business luminaries answering the query: "Climate Change Market Regulation in 2010: What is Success?" Included are speakers S. David Freeman, interim general manager of LA DWP, Michael Peevey, president of the CPUC, and Robyn Beavers, former manager of corporate environmental programs for Google. Their opinions regarding the potential impact of political developments of recent months on the green market vary widely.


Robyn Beavers

S. David Freeman: A hundred years ago they separated politics and economics into two different lines of learning. Now we have politicians that know very little about economics and economists that know very little about politics, and we end up in the mess that we're in. The truth to the matter is that this fellow that won the Senate seat in Massachusetts has done everyone a really great favor because the Congress was pursuing legislation that no average American could possibly understand, and it was going nowhere. It's dead now. Forget about the cap-and-trade legislation; it's dead as a doornail, in my opinion. What we need to do is take a few steps backwards, or forwards, and just think. What has happened in the past ten or 15 years that we can learn a lesson from? We tried deregulation in this state, my friends, and it was a dismal failure...

...A commercial plant requires federal support. The real issues in energy policy that are holding us back are NIMBYism and the need for a federal law that will enable us to build power plants in the least damaging places for the environment. But by gosh, build them and finance them. We introduced nuclear power in our society in the '60s because the government paid for half of the cost of the new first plants. We have bottlenecks in terms of siting and in terms of financing. Look at our history: we built the natural gas pipeline network in America because we had a federal law that preempted state and local laws. You needed a certificate from the federal government, and you built it. We built the federal highway system that way. We need to build a national grid that way. We need to have government help for the first of a kind of these new technologies to be financed.

Michael Peevey: Many of the things that David just said I agree with but not all of them. The question was about market regulation, and let me just touch a little bit about that. I am not convinced that the best thing that happened in the country was the election of Senator Brown in Massachusetts last week. Although he'll probably emerge as a somewhat moderate New England-type person, not the portrayal of him that was so dramatic in the campaign. After all, this man, at age 25, posed in Cosmopolitan magazine. So he's got a certain kind of charm that would appeal to many here on the West Coast, particularly in Los Angeles. However, market regulation, which means a cap-and-trade system, was on life support before the election and, on a national basis, it's dead for some time now. Although I guess one could hope that at some point that Lieberman, Graham, and Kerry can resurrect some mild aspect of all this. People just don't understand what cap and trade means, and it seems like a rip off. Everything is now demonized as a rip off-the banks, this, that-and much of that is true; there's no question about it. But the cap-and-trade type program that we're talking about at the national level is very difficult to establish when 50 percent of the country depends on coal, such as in the South and the Midwest, and those people worry very much about the economy. As we'll hear Wednesday night, the President finally got the message from James Carville, "It's the economy, stupid." It's jobs, stupid. It's jobs; it's jobs; it's jobs. That's all we'll hear for the balance of this year until November.

After saying that, we're probably going to have climate change at the national level interpreted by the federal Environmental Protection Agency. I, frankly, would prefer a statute that had cap and trade and many other features in it, than to have this done purely by the executive branch of government because they have the power and authority under law, under the Clean Air Act, as held up by the courts, to implement all the aspects to achieve what we in California would say is AB 32, but at the national level is the same kind of goal. If you think the Congress can be unresponsive sometimes, try the siloed agencies of Washington, D.C. So I'm not so sanguine about the outcome of Massachusetts, even rhetorically, like David (Freeman) is.

Let me just say a little bit about California. Fortunately, we're in a little different situation. We will come up with a cap-and-trade program in this state by 2012. That is the responsibility of the Air Resources Board, working with the California Public Utilities Commission, the Energy Commission, and others. That cap-and-trade program will account for approximately 20 percent of the reductions in CO2 that we've targeted for the year 2010. The other 80 percent will come from traditional, or near traditional, command and control programs, such as standards for light duty vehicles, concentration of carbon in fuels, renewable portfolio standard or renewable energy efficiency, and a whole array of other programs, but those are the big ones.

We will get 80 percent of our 2020 reduction from that, and the other 20 percent is slotted to come from a cap-and-trade program, which the state can do within California. That's not an optimal situation. We may do it with Oregon, Washington, and British Columbia, but that's still not an optimal situation. The governor has urged that the whole west of the United States be part of a cap-and-trade program, and I wish him the best on this. I wish we could bring that off because his leadership in this has been rather extraordinary. The problem is that many of those states, at the end of the day, aren't going do that. We're going to end up doing something in California. Maybe that will be an interesting thing if we do it on the so called "Left Coast of America"-California, Oregon, Washington, British Columbia-which have similar interests and needs and look at the environment in a similar way. If we do that, maybe it will demonstrate to others that what we're talking about and what the Europeans have been able to do is not some terribly dangerous thing that will destroy all of our economy.

Our challenges in terms of climate change are so immense that they overwhelm market approaches. Much more has to be done, as David said, by more of a command and control, "We're going to do this; we're going to set this program; you have to reduce usage here," and so on and so forth.

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40 years from now it will be 2050. Under AB 32 we're supposed to be at 80 percent reduction from the 1990 levels of CO2 emissions and other greenhouse gas pollutants by 2050. To achieve that means that the per capita carbon footprint of each of us in this room and all the other people in this state will have to be reduced to that of the average resident of India by 2050. They are a pretty backwards society today in many respects. They have a light carbon footprint because they're so agricultural. That's where we have to go as a society. It's a Herculean challenge, and we're not going to get there with markets alone. We're going to have to get there with many, many other programs, including the most important of all in this state, investment in technology. Technology, technology, technology, which can point the way and help the rest of the world achieve its environmental and economic and sustainability goals. Thanks.

Robyn Beavers: I'll spend my time not necessarily forecasting market regulation or what should be happening and what shouldn't be happening, but instead talking about what can we do right now to inform future regulations, because we have a lot to work with right now. Generally I'm an optimistic person, and I'm still very optimistic about the future of the innovation, energy technologies, and the design of buildings. The visions we all have, I still believe we can achieve here. I've just observed a lot of positive examples of this, which is why I still believe in it.

First of all, as you can see from any of the panels today or talking with anyone at this conference, there are concrete examples by local municipalities, corporations, regions-anything where there's been work and thought and success placed toward advancing progress. For the first time, in the past few years, we've been able to stand back and look at what's worked and what hasn't. Whether that's the corporate strategic programs that a company decides to invest in-by this point, many companies have been working on this for years. They can actually evaluate the success of these programs. That informs their strategy now as opposed to just taking risks, which is what we were doing a few years ago.

Between my two years at business school I spent my internship at the Department of Energy, working on the Recovery Act team to help the United States spend about $60 billion investing in renewable energy technology in the United States. That's an unprecedented level of investment from our government, and I know many people are nervous about it. The way I looked at it was injecting and trying to stimulate this innovation across a portfolio of programs. They were focusing on innovative research all the way through project finance. They were trying everything, and as a result of that we will now have data coming back from these different approaches. The evaluation and the analysis of that data will be really important going forward for the market regulation and the policy. It's data we've never had before, and I find that very exciting and positive.

What was interesting from the U.S. perspective this summer was that for the first time the DOE was expected to stimulate change as opposed to just regulate it. It's an amazing organization, and I'm not trying to be a cheerleader; I just found it fascinating. It's tens of thousands of employees across the country. Many of them are deep technical experts in a lot of these areas that are still being debated today. It has been a dispersed and broken team for a long time. The challenge is no longer convincing the U.S. to start committing resources and ideas toward these issues-the issue is how do you change an organization; how do you make it more effective? It's no longer the content; it's the operational challenges. There are a lot of opportunities there. It's now going beyond, "Let's make these commitments," or, "Let's lay down this framework." It's now, "Let's execute." That can attract a lot of talent and a lot of opportunities for innovation beyond the buy-in that we were all trying to get a few years ago.

Finally, another interesting area that could be helpful in future policy generation is that more data is coming. We have sensors in buildings, we have software platforms to collect this data, and we have everyone talking to everyone now. Now we just need to do something with it. It's almost an overwhelming prospect to think about the ability to extract the performance data, the economic data, and the health improvements from all of these areas that we know this all makes sense in, and to actually deliver the clarity and the results that can help then make decisions move a little bit faster.

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