Calif. GHG reduction programs not equally cost effective: report

The most recent report on California’s efforts to curb greenhouse gas emissions found that while GHG emissions have declined, the state’s existing range of policies shows uneven cost effectiveness of a wide variety of programs.

Annual emissions from the electricity sector have declined by about 40% or by 40 million metric tons over the past decade, according to the report, Assessing California’s Climate Policies—Electricity Generation, by the Legislative Analyst’s Office (LAO), the nonpartisan fiscal and policy advisor to the California Legislature. State law requires the LAO to report annually on the economic impacts and benefits of the state’s GHG limits.

The report also found substantial differences in the costs of reducing emissions, from $20 per ton of eliminated GHG emissions for the state’s cap-and-trade program to $150 to $200 per ton of emission reductions for residential solar power programs.

For instance, California’s renewable portfolio standard is “likely a substantial” driver of GHG reductions and, according to “back-of-the-envelope” calculations, the report estimated that the RPS program reduced emissions by “up to the low tens of millions of tons in 2018” at a cost of $60 to $70 per ton.

On the other hand, programs such as the California Solar Initiative (CSI) and net energy metering (NEM) likely had a “significant impact” on the amount of electricity generated from rooftop solar installations, which reduced annual emissions by “several million tons,” but the estimated costs of emission reductions under the CSI program were about $150 to $200 per ton and the overall effects of the NEM program “are not clear” but have “likely resulted in a substantial financial cost-shift from solar customers to nonsolar customers,” the report found.

On the other end of the cost spectrum, market prices of emission allowances “suggest the marginal costs for emission reductions” encouraged by the state’s cap-and-trade program have been less than $20 per ton, but the “overall amount of emission reductions from electricity generation attributable to the program is unclear,” the report found.

Overall, state policies have likely been a substantial driver of emissions reductions, but a variety of other factors also come into play. The report attributed most of the emission reductions to a change in the resource mix used to generate electricity, primarily large increases in generation from solar and wind power, and, to a lesser extent, reductions in the amount of coal used to generate electricity.

The report identified inconsistencies in the state’s various programs aimed at reducing GHG emissions, including “a lack of rigorous retrospective evaluations for some programs” and recommended that the legislature consider directing agencies “to identify opportunities to facilitate retrospective evaluation by ensuring data is available to researchers and, potentially, designing programs in ways that allow for more robust evaluations.”

The report also recommended that the legislature consider additional reporting requirements and/or funding for research in areas such as the effect of distributed solar on distribution system costs. The report found little evidence to date of a reduction in distribution costs from rooftop solar installations, except in certain locations.

The report also cited a California Public Utilities Commission estimate of RPS compliance for the state’s investor owned utilities in 2018 that put that cost at $1.1 billion higher than the cost of generation from a source such as a natural gas-fired combined cycle plant, representing a nearly 5% increase in retail rates for bundled IOU customers.

While the report did not estimate future costs of GHG reduction programs, it did note that costs for renewable energy equipment could decline but those declines could be partially offset by higher integration costs.

The report also noted that California’s high retail electricity rates could pose a barrier to further GHG reductions. “Retail electricity rates are substantially higher than the marginal social costs of providing electricity,” the report said. And high rates discourage adoption of technologies such as electric vehicles and appliances that could serve to reduce GHGs.

The legislature “might want to consider actions that more closely align retail electricity rates with the marginal costs of providing the electricity,” the report said, adding that lawmakers could direct regulators to exclude some utility fixed costs and some policy costs from utilities’ volumetric electricity rates and “potentially fund them in other ways.”

“Legislatures and regulatory agencies are often quick to create new rules, but don’t always determine effectiveness of their policies,” said Barry Moline, executive director, California Municipal Utilities Association. “Since consumer costs are already high, this report lays out the cost-effectiveness GHG reduction policies we need to expand upon, as well as the ones we need to shrink.”