Friday, July 29, 2011

Obama steps up a gear with new standards on fuel efficiency for cars

Barack Obama pleasantly surprised many today with his announcement on fuel efficiency standards today – or at least he would have done if 54.5 mpg by 2025 target hadn’t been conveniently ‘leaked’ earlier in the week.
“This agreement on fuel standards represents the single most important step we’ve ever taken as a nation to reduce our dependence on foreign oil. Most of the companies here today were part of an agreement we reached two years ago to raise the fuel efficiency of their cars over the next five years. We’ve set an aggressive target and the companies are stepping up to the plate. By 2025, the average fuel economy of their vehicles will nearly double to almost 55 miles per gallon.”
At an increase of 5% a year, this is almost the highest rate of increase in fuel efficiency Obama could have opted for. Campaigners leveled their bargaining position at the highest rate, 6% from 2017, resulting in a 62mpg fleetwide. Some would have pushed for higher targets. The Ceres group for example published a report, More Jobs per Gallon, which sketched an economic scenario at the 6% rate:

“U.S. federal, state, and local government tax revenues increase by $9.5 billion under six percent scenario, from more than $9 billion (2009 dollars) under the three percent scenario to nearly $19 billion (2009 dollars) under the six percent scenario.”

Most economists would agree that increasing fuel efficiency would divert money from the 55% of oil imports for vehicles and pump that into the economy instead of fuel tanks.

And the Obama administration has done its own maths, estimating that American families will save $1.7 trillion in fuel costs and cut oil consumption by 12 billion barrels of oil “and by 2025 reduce oil consumption by 2.2 million barrels a day – as much as half of the oil we import from OPEC every day.”

Driving Efficiency: Cutting Costs for Families at the Pump and Slashing Dependence on Oil, also estimates that the standards will cut more than 6 billion metric tons of greenhouse gas over the life of the program – more than the amount of carbon dioxide emitted by the United States last year.

But what was billed even by campaigners as a “historic compromise” could equally be described as a “historic achievement.”

Obama had invited Ford, GM, Chrysler, BMW, Honda, Nissan, Toyota and Volvo among others as well as the United Auto Workers.

But perhaps the key player in this was Mary Nichols, the chairwoman of the California Air Resources Board who had also been invited to the announcement in Washington.

Carb has been working behind the scenes with the EPA, the DOT and NHTSA to thrash out a deal that the auto-industry would agree to and submitted its suggestions in June. The fact that this compromise was agreed to way before the September 1 deadline is testament to the way Nichols is such an effective negotiator among stakeholders and has now achieved in DC what she has already achieved in Sacramento by winning the support of business in California’s cap and trade scheme.

Obama didn’t directly name Nichols. But he might as well have done. When he thanked the “state of California” he was addressing one person and her agency, not its population of 38m.

Obama’s remarks today were also genuinely strong on the power of policy to create innovation that fuel the next generation of technology – and repeatedly connected decreased use of fossil fuels with increased developed of clean energy.

"$4 billion in subsidies we provide to oil and gas companies every year at a time when they’re earning near-record profits, and put that money toward clean energy research, which would really make a big difference.
"In the long run, we’re going to have to do more. We’re going to have to harness the potential of startups and clean energy companies across America. We’re going to need to build on the progress that I’ve seen in your factories, where workers are producing hybrid cars and more fuel-efficient engines and advanced electric vehicles. We need to tap into this reservoir of innovation and enterprise.

"Lastly, these standards aren’t just about the bad things we’ll prevent; it’s about the good things that we’ll build. As these companies look for ways to boost efficiency, they’ll be conducting research and development on test tracks. They’re going to look to startups working on biofuels and new engine technologies. They’re going to continue to invest in advanced battery manufacturing. They’re going to spur growth in clean energy. And that means new jobs in cutting-edge industries all across America
Clearly exasperated by the battles in Congress over raising the debt ceiling, Obama made no secret that this is the kind of dealmaking he would welcome:
“So when it comes to tackling the deficit, or it comes to growing the economy, when it comes to giving every American an opportunity to achieve their American Dream, the American people are demanding the same kind of resolve, the same kind of spirit of compromise, the same kind of problem solving that all these folks on stage have shown. They’re demanding that people come together and find common ground; that we have a sensible, balanced approach that’s based on facts and evidence and us reasoning things out and figuring out how to solve problems, and asks everybody to do their part.”
Of course the rule is still only a proposal and there is still time potentially for the automakers to expand the loopholes on small trucks and the 2021 ‘review’ but for now, the US really has changed gear.

Without no energy or climate policy on the horizon, the announcement today could be the single most effective decision to date in the development of clean energy in the US. 

Thursday, July 28, 2011

Jerry Brown's 12GW distributed solar target shouts FITs from the rooftops

Jerry Brown this week restated his campaign commitment to add 12GW of new distributed generation to California’s grid.
Most of it will have to come from rooftop solar. That’s not a problem in sunny California perhaps. But it’s a tall order given that the figures for distributed generation under the California Solar Initiative currently stand at around 1GW.
It’s also a challenge because solar developers in California are now tooled up for large utility-scale installations, fuelled mainly by the state’s aggressive Renewable Portfolio Standard target of 33% by 2020.
But Jerry Brown in his 70s, appears to be just as shrewd a governor as he was in the 70s, if recent accounts from renewables analysts are anything to go by.
The US has a lot to gain from looking at European models of renewable market growth, said Daniela Schreiber at EUPD Research.
At the recent Intersolar conference in San Francisco she gave a brilliant account of the risks of asymmetrical policy frameworks and argued that Renewable Portfolio Standards, with their emphasis on utility-scale installations, were not sufficient to create a mature solar market. As utility scale installations peaked, longer-term incentives were required to boost the domestic and commercial rooftop segment.
California still led the market in the US, with 30% of installed capacity, down from 80% in 2006, she said. Desert states in recent years have raced to install solar projects, and resulted in the massive growth for 2010 of 710% in New Mexico and 430% in Arizona.
But she said these growth rates were unsustainable and represented how little solar was installed to start with - New Mexcio only had 70MW of installed capacity in 2010, for example.
These growth rates can be partly accounted for by RPS targets, she said. But reliance on only RPS puts the market in a vulnerable position without long-term incentives.
“You may argue that this is not quite sustainable because if you look at what’s behind the framework certainly the RPS is important. But if you theoretically think what if that target is reached? What will be next? In the worst-case scenario, if no more improvements were done in terms of framework, that would mean that the market would die.”
Europe had learned some painful lessons she said: “This growth is not that sustainable. I can give you some European examples, Spain in 2008 was the market leader in terms of installed capacity. Once the target is reached, the market can be closed down. That’s what happened in Spain. Its market skyrocketed in the large-scale segment with average system sizes of 8MW and all of a sudden the government decided to stop it killed the market.”
The key to stabilizing markets would be smaller scale deployment, she said. “The residential and commercial rooftop segment however, is vital for sustainable market development. And this is something you can see in markets such Germany and Italy.”
Colorado had also succeeded in balancing its market too, she said. “Colorado has developed all segments – the residential segment and commercial segment, small and large-scale.
“But if you look at a less mature market in New Mexico there is huge growth in large scale segment.
“However, there is risk involved with large-scale only because smaller scale residential and commercial are considered to be more sustainable.”
She acknowledged that Europe faced pressing challenges over market stabilization now that FITs were winding down in Germany and other countries. But FITs still represent a proven stage in market development, but PV would become more of an energy generation proposition rather and an investment opportunity.
“Let’s face it we’re moving to a time when the feed in tariffs are slowing fading out. Where new market drivers come to the fore, self-consumption, energy production – not so much an investment case and that comes with much more market drivers that will impact the industry.
“There are a lot of question marks over what will happen in the next phase of PV meaning energy generation…”
Italy was still a growth area for FIT-driven projects, she said, despite fears the government was going to scale back quickly on its massively successful Conto Energia.
“Italy had a good last year in 2010. A lot of installed capacity - 2.5GW that will be connected this year plus they amended the Conto Energia. It came out a lot better than expected. So the limitation for the FIT is up to 1MW rooftop systems.
“That’s really good because it helps to address commercial segment – so the prospects for Italy are great. Natural conditions are great. FITs are still great so we still do see a good installed capacity in 2011. And also in 2012.”
Part of this growth was thanks to Italy cutting back on redtape – regulatory streamlining would be an easy improvement for something that the US which also needed to create more market certainty.
“Before there was a problem with the approval process, bureaucratic issues that hindered the market growth. In the US this is really a big, big problem. There are problems around financing and how stable is the framework?
Honestly, the FIT is the very important tool that totally fostered the market development in Europe. Regardless of the framework systems in the US which may absolutely work, it is important to provide security of a stable programme.
“In Europe, the PV market is moving toward commercial and residential as sustainable segments. Markets are so fragile and volatile because they depend on framework conditions in both Europe and the US.”
At his conference in LA this week, Brown railed against barriers to deployment of renewables such as permitting and public participation in democracy:
There’s two regulatory hurdles - just getting a permit that could take a cookie cutter ordinance. Some 400 cities that could issue these permits which invite community participation. When you have 38m people [living in California] there is always going to be someone who says no.”
“Our system of participation means that any old fool can object to anything. But restricting participation has the feel of being undemocratic but you invite everyone no matter how benighted you wouldn’t get anything done.”
“[There is] a lot of distributed political power - we need base of arbitrary power to get over that.”
He vowed to make the regulatory authorities such as the California Public Utilities Commission, the California Independent Operator System and the California Energy Commission, work together to overcome problems such as complex and expensive permitting processes which varied in the state.
In San Jose a permit for domestic installation can be done over the counter, whereas the process was a lot longer and costlier in LA, Solar City pointed out during a panel discussion.
Brown said that the EU and China were leading on clean energy because its executive leadership were allowed “greater latitude” to execute and implement policies. 
If you are in Germany or China there are more eyes on the prize because those countries allow executive leadership more latitude. So many people in California can block things.
“Someone has to think long term and someone has the authority to execute that doesn’t please the immediate news cycle.
“The challenge is -  can anyone anywhere in the public sector make a long term decision and make it stick?”
But I wonder if Brown has yet grasped the nettle: making any target stick, such as his ambitious 12GW goal, may well require new legislation… but that will take time.
Incentives through the CPUC may achieve quicker results… but can Brown convince the commission and utilities to make a common sense decision on FITs?

Wednesday, July 27, 2011

Californian utilities are having a FIT over good clean energy policy

When I first came to California to report on the clean energy industry a few months ago, I was surprised to find the absence of feed in tariffs, in particular for domestic users. 
I have since puzzled why the US was so resistant to such a simple system, which has created massively successful solar PV markets in Europe, particularly in Germany. Craig Lewis of the Clean Coalition has even had to resort to call FITs something else - clean programmes - to break through the mental block in the US.
I have not been able to find a good reason why European-style FITs don't fit in the US - until now. I don't so much have a definitive answer, but at least I have a plausible theory.
Nowhere on this earth could the reasons behind resistance in the US to FITs have been more obvious than at the Intersolar conference earlier this month. Armadas of European companies, analysts, academics and politicians flooded the halls of the Moscone Centre in San Francisco to win business and report from their own frontline on policies that create value for society, rather than just profits for investors.
The California Public Utilities Commission does some valuable work in shielding ratepayers from excessive price hikes from utilities. If only the UK’s Ofgem had similar powers. But Californian ratepayers pay the CPUC to act in their interest through a tariff on their monthly energy bills.
But I am increasingly uncertain that the CPUC is always acting in the interests of ratepayers, instead favouring close relationships with utilities, which is why it launches half-way house schemes such as reverse metering instead of hitting FITs with both barrels.
When people ask me about my experience of the US so far, I wonder whether Winston Churchill was thinking about the US (he was proudly half American, after all) when he described Russia as a riddle inside of an enigma.
My experience of California and the San Francisco Bay Area has been one of contradictions – bright sparks of first-world innovation that set the world alight start in Silicon Valley. It is exhilarating and a privilege to witness this clean energy evolution at the fringes as a journalist.
Yet it is difficult to stomach the desperate poverty of the street homeless. I would guess a disproportionately higher percentage of the city of San Francisco’s official population of 800,000 would classify as homeless or insecurely housed than other “world-class” cities.
But this rot that undermines social cohesion doesn’t stop at those who sleep next to their shopping carts on the pavements during rush hour. The multiplier effect of allowing these desperate souls to sleep rough resonates way beyond the blocks have turned into no-go zones such as the Tenderloin. For every drug addict, there are probably at least 3 dealers. For every dealer, there are probably three suppliers no doubt connected only by a few degrees of separation from the ugly and extreme violence that curses Mexico.
This is where I abandon liberal values and romantic notions of people choosing to live like this. I’m sure even Republican politicians would advocate zero tolerance of such visible social decay… as long as they don’t have to pay taxes to support it.
What has this got to do with utilities and their resistance to FITs? Put simply, it is just one example where commerce trumps common sense. 
The chasm between the elite of Silicon Valley and the homeless on the streets of San Francisco should be filled by good public policy. But problems over funding for the basic requirements of a healthy economy, such as mass transit, expose the failures of public policy to bridge the gap. The valley of death means something quite different for San Francisco’s homeless…
Policies are meant be designed to create value to society, not just individual companies. But in the US, there is an emphasis on policy and regulation that encourages commerce, rather than restricting it.
For the most part, the CPUC balances its regulations with the need for utilities to make money. But some critics have argued that the CPUC has gone too far.
The San Bruno disaster has already cost the "retirement" of PG&E’s chief executive Peter Darbee. And it might not end well either for Michael Peevey, the chief commissioner of the CPUC.
The investigation is ongoing. But has already thrown up some fairly awkward moments for Peevey’s CPUC regarding its oversight of utilities and why the commission hadn’t followed up when it granted PG&E $5m to fix the faulty stretch of pipeline that then blew up. The CPUC had previously not followed through with enforcement of fines after PG&E  was found at fault when a gas pipeline explosion killed one person in Rancho Cordera in 2008.
A few months ago the Bay Area Guardian ran an excellent piece of investigative work into the CPUC’s junkets overseas. I disagree that poachers never make good gamekeepers – who wants a regulatory authority run by someone who doesn’t understand the industry after all?
It is also of tangible benefit to send CPUC and utility executives to see how other jurisdictions in Spain and Germany for example structure their energy industry. God forbid they should never look beyond the walls of the Californian or US energy industry for examples of best practice. I don’t care how big the hotel pool is – but I do care about what they take away from meeting energy industry executives in Europe.
It also describes the California Clean Energy Fund as “obscure” which it transparently is not…
But I agree with the well-researched article that, given his background at Southern California Edison, that Peevey will have taken a generously sympathetic attitude towards utilities into his role at the PUC.
Light winds of change are blowing, however, after Governor Jerry Brown made his first CPUC appointment in March. Mark Ferron, has a background in financing so badly needed in the energy industry. And a fresh pair of eyes without direct experience of working in the energy industry may be an advantage.
Perhaps Brown is playing a shrewder strategy here. By keeping Peevey in post, he keeps him accountable for the San Bruno disaster.
Until there is fresh blood at the top of the CPUC, the state is unlikely to see any significant movement on FITs.
As Dan Adler, CalCEF president, said in the article:
"Utilities are effectively monopoly, or oligopoly, controllers of the energy industry," he said. "And they don't like outside innovation coming and disrupting their work process or their relationship with their customers."
Adler’s comments are a common refrain in the energy innovation sector in California and go a long way to explain why the CPUC has resisted at least domestic FITs on behalf of utilities … because they will sell less electricity and lose money.
Proponents of clean energy have told me that they still see themselves as electricity retailers and the electric vehicle is the best thing to happen to them since air conditioning. All electricity retailers want to sell their commodity regardless of how it's generated and a shift to renewables is a shrewd move to avoid the risk of the inevitable rising cost of carbon.
Utilities are fearful that their revenues will dwindle as US investors wake up to energy efficiency. And making money in a market where energy is cheaper than it is in most other rich nations is going to be a problem when more homes and businesses start producing their own electricity.
But utilities need to stand aside on FITs and allow the policy stimulus to do its work and prove that not all regulations are bad for business. More than that, good regulations should create businesses that bring benefits greater than the sum of their dividends to shareholders. 
More on FITs and the view from Europe tomorrow…

Friday, July 22, 2011

Nicholas Stern and the impact of the economic crisis on climate change

The Copenhagen climate talks in 2009 were billed as the summit that would save the world from disastrous climate change. But it failed to deliver a binding deal on carbon emissions. Since then, progress on an international deal has been slow as countries have become more preoccupied with saving their economies, rather than saving the world.

Dimitri Zengelis, associate fellow of the energy, environment and development programme at Chatham House in London, says: “The obvious impact is that nobody wants to think about the long-term and the environment that people consider higher order luxuries when they are struggling to pay their mortgage and wondering where their next pay check is coming from and whether they are going to keep their job.”

Europe’s drop in GDP by around 5% between 2007 and 2008 and the debt crisis which began with Greece in 2010 have distracted EU governments who had championed climate policy, says Nick Robins, HSBC’s head of the Climate Change Center.

He says: “Europe has led the pack for the last 20 years and we believe that the EU is the largest market for low carbon goods and services and will be so in 2020. But the EU has hit a pause in terms of more policy incentives. It’s still working out the fiscal austerity issues that are top of mind at the moment.”

Meanwhile, in the US, progress on domestic and international climate policy has been overshadowed by a $14.26tn budget deficit and an unemployment rate of 8.8% as of March, well above the average of 5.7% for the past 50 years.

Dr Margo Thorning, chief economist at the American Council for Capital Formation, says that the economy partly prompted Congress to reject a cap and trade scheme last year, and this year Republicans have repeatedly sought to protect fossil fuel companies by limiting the powers of the Environmental Protection Agency to curb emissions.

She says: “The slowdown in the economy that really hit us hard in 2008/2009 made economic growth and restoring jobs the priority in the US. Paying more for energy is inevitable if you try to quickly phase out fossil fuels and would make it tougher to keep your business going or perhaps precipitate moving more jobs out of the US.”

Lord Nicholas Stern, chair of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics, acknowledges in the Harvard International Review published in April:

“These last two years have also seen a fallback among some developed countries in the national and international priority given to climate change, for two primary reasons: first, the assault on climate science, and second, the international financial and economic crisis.”

US public and political opinion may also have been more impacted by the “climategate” scandal and the mistake over predictions of melting Himalayan glaciers in the Intergovernmental Panel on Climate Change’s 2007 report.

Professor Richard Muller, who runs the controversial Berkeley Earth Surface Temperature project at UC Berkeley, California, says “climategate” and “glaciergate” undermined public trust.

He says: “The people involved in it convinced themselves that climate change is a looming disaster. Because they believed the data to be strong and didn’t trust the public to be persuaded by the scientific case they took decisions so that the public reached the ‘right conclusions’.

“The IPCC says the Himalaya glacier mistake is a small of the report, but it’s not a small part of public opinion.”

As countries prepare for the next major UNFCCC meeting in Durban, South Africa, in November, hopes are increasing that further progress will be made on issues such as forestry, technology and climate finance.

The Copenhagen accord set a target of climate finance flows from developed to developing countries of $100bn a year by 2020. So far, the World Bank has received $12bn of the climate finance money, but one of the ongoing impacts of the global recession may be that the $100bn target will be harder to achieve.

Sir David King, director of the Smith School of Enterprise and the Environment at the University of Oxford, says: “We’ll have to wait and see, I’m one of the skeptics as to whether it will grow.”

Although the non-binding Copenhagen accord was greeted with disappointment, 140 countries have signed up to curb emissions by 2020, covering 85% of the world’s emissions.

But Sir David says the accord is a better deal going forward than a binding global deal.

He says: “If we had a binding deal at Copenhagen it would have been another drop in the ocean. But we’re in a much stronger situation now, which is muscular bilateralism and multilateralism – this is what we’re doing what are you going to do? It’s very different from saying let’s negotiate. It’s much more productive.”

And although the US position in international climate talks is hamstrung by Republican resistance to domestic policy, change might come sooner from the corporate world, rather than Congress, says Zenghelis.

He says: “What’s going to move it? It’s not going to be the science or the morals, it’s just going to be hard core American business getting up and saying look we are totally slaughtering our manufacturing capacity relative to our competitors in particular China. That’s what going to swing it eventually in America – it’s forward sighted businesses, innovators and technology companies.”