"California's Fight Against Global Warming Changes in the Business Climate"           Ken Schwarz, JD           www.fedcontracts.org

Analytical Perspectives, Budget of the United States Government,
FY 2008 Aid to State and Local Governments
http://www.whitehouse.gov/omb/budget/fy2008/pdf/apers/crosscutting.pdf

California’s Fight Against Global Warming Changes The Business Climate

By Kenneth C. Schwarz, J.D.

            The nation’s energy producers may soon be concentrating on Sacramento, instead of Washington DC, to track the new regulations affecting their trade.  California has long been the nation’s “petri-dish for American policy”[1] as many state initiatives, such as the ban of smoking in public restaurants originated in the Golden State and were gradually adopted by several others.[2] Today, California’s influence is manifesting itself in the form of Greenhouse Gas (GHG) initiatives that are capturing the country’s attention. Therefore, utilities, refineries and other producers of energy must determine how they can succeed a rapidly changing market.

            Last fall, California Governor Arnold Schwarzenegger and members of the Democratic controlled state legislature announced the first mandatory legislation to curb Greenhouse Gasses by 25% by the year 2020. Schwarzenegger followed that with a recent executive order, which called for producers of transportation fuel to reduce their carbon emissions by 10% by the same year. [3]  These new requirements have paved the way for a new “Cap and Trade” market whereby manufacturers of energy can gain credits for tons of carbon that have been reduced to acceptable levels.  These credits can be sold to other companies who are struggling to regulate and need to escape penalty.[4]

It is unlikely that these regulations will be isolated to the Golden State as several states across the nation are applauding California’s steps to cut GHGs.[5] On the West Coast, Washington State recently declared its intention to follow California’s commitment to cut GHGs to 1990 levels.[6] Meanwhile, Oregon is considering a similar commitment.[7] Schwarzenegger has met for discussions with members of the East Coast Regional Greenhouse Gas Initiative to discuss partnering on the cap and trade market with like-minded states.[8]

Companies who can supply alternative fuels stand the most to gain by adapting to California’s GHG initiatives. Some utilities have embraced the regulations and can get an advantage by investing in natural gas and also may reap the benefits of new eco-friendly vehicle owners turning to them for power.[9]  Meanwhile, ethanol producers anticipate expanded business and a greater workforce which could pave the way for new jobs in the state.[10] Although Schwarzenegger declines to endorse a particular alternative fuel style, it is clear that these regulations will create a competitive energy market.

Oil refineries have responded less enthusiastically to the initiatives most likely because, according to UC Davis professor Daniel Sperling, it is impossible to process fuel without emitting GHGs.[11]  However, these industries can play the new marked and choose between new bio-fuels or credits offered by other competitors.[12]  Moreover, some companies have taken pro-active measures to protect their interests and partnered with Schwarzenegger by contributing funds to research universities in order to pursue a practical, market-based solution to lowering their emissions. [13]

A larger challenge exists with industries, like coal, that produce the highest levels of GHGs. However California’s commitment to clean-burning coal[14] and the national momentum behind clean energy may ultimately persuade industry leaders to follow suit and invest in newer and cleaner technologies.