Whether in the form of a carbon tax or cap-and-trade regime, climate-change policy is coming and will have a profound effect on electric suppliers and consumers. EPRI studied the effects of high...
The Key to California's Coal Future
and the Legislature, emission reductions levels by 2020 would be 25 percent higher under a business-as-usual case—in stark contrast to a reduction implicit in the 2020 target. This gap, accounting for about 145 million tons of emission reductions, 2 constitutes a formidable challenge to California energy policymakers.
To meet this challenge, California is in the midst of developing a policy package based on four components: Aggressive energy efficiency programs, increased support for renewables, limited greenhouse-gas emissions from fossil electricity generation, and project-based emission reductions.
The most important and cost-effective emission reduction strategy is energy efficiency. Energy efficiency, a cornerstone of state energy policy, is not new to Californians. Electricity consumption per capita has remained relatively steady since the mid-1970s and currently is about 60 percent below national averages. 3 Additional policies are in place or under development that will bring multiple benefits: increasing security by decreasing reliance on foreign imported fossil fuels, saving billions of dollars in energy costs, and reducing millions of tons of carbon dioxide emissions.
The second strategy is establishing a very aggressive Renewable Portfolio Standard (RPS) that requires 20 percent of the power from regulated utilities to come from renewable sources by 2010, increasing to 33 percent by 2020.
Unfortunately, efficiency and renewables alone will not allow California to meet either its growing electricity demand or its greenhouse-gas targets. According to a recent study by Environmental Defense, more than 14,000 MW of new coal-fired generating capacity is under development in some form in the major coal-producing states, in large part to meet growing demand in California and the Southwest. 4 The same study notes that even if California successfully implemented a 33 percent renewable portfolio standard—a very ambitious target—the state’s demand for coal-generated electricity will be much higher in 2025 than today. 5
The situation is similar for the United States as a whole. Based on the Energy Outlook 2005 conducted by the Energy Information Administration, coal remains the primary fuel for electricity generation for the next 20 years. It is estimated to cover about half of electricity needs in the United States, with natural gas accounting for another 24 percent. Of the projected increase in greenhouse-gas emissions from the electricity sector, 80 percent is expected to come from new coal-fired generation. 6
California has initiated policies designed to help stem this growth of new coal-based emissions. The California Energy Commission (CEC) recently proposed that a GHG emission performance standard for utility procurement be set equal to a new combined-cycle natural gas turbine. In addition, the CEC proposed in November that investor-owned electric utilities in the state be prohibited from entering long-term contracts for power from plants that create more carbon dioxide than natural gas-fired plants. 7
Switching to natural-gas firing can lead to significant emissions reduction. However, the underlying question is how much natural gas will be available at an acceptable cost. Volatile price changes in natural-gas prices compared with anticipated stable price developments for coal make coal an even more attractive energy source. Also, the United States has about 25 percent of