Evil Energy Ballot Bill

By Mike Mulvihill

Mid-term elections are today so get out and vote!  One of the most interesting political battles to be determined in the next 24 hours has no incumbent, no candidate, but there’s plenty of dirt being thrown.

If passed (which appears unlikely), California’s ballot Proposition 23 would allow voters to suspend the state’s 2006 Global Warming Solutions Act until unemployment in the state declines to 5.5 percent for at least a year – an unlikely event to say the least.

According to the LA Times, Prop 23 is the most closely watched environmental election fight in the country with national conservation groups, Silicon Valley moguls, Hollywood celebrities and California politicians waging a scorched-earth campaign against Valero Energy Corp., the nation’s biggest independent oil refiner and the principal backer of Proposition 23.

The No on 23 campaign (stopdirtyenergyprop.com) has raised more than $28 million, as opposed to just $9 million for Valero and supporters of the measure. The Yes campaign spent its money early and has had to pull way back on its TV air time. So its message attacking the state’s global warming law as an “energy tax” that would kill jobs and reach into consumer pockets may have failed to reach many voters.  As a result, Proposition 23 is trailing badly in the polls and is expected to be soundly defeated today.

The opposition has painted the picture of a battle between supporters of the new green economy (vote no) versus evil out-of-state (Texas) oil companies (almost exclusively Valero since few major oil companies have joined fight apart from Wichita, Kan.-based Koch Industries and Tesoro Corp., which is based in San Antonio, as is Valero) seeking to avoid the measures included in the 2006 climate bill.

Supporters have some valid points about the consumer costs of and the practicality of delaying implementation of the 2006 climate bill.  The bill includes a mandate that 33 percent of California’s electricity come from renewable sources by 2020. Despite decades of subsidies for wind, solar, and biofuels, in-state renewables met only 9.6 percent of electricity demands in 2009. California wind farms delivered only 1.7 percent and solar fields only 0.3 percent of demand. Imported electricity from nearby states met 30 percent of the need. Without the 2006 bill mandates to force utilities to buy expensive and intermittent renewable electricity, change is not likely to occur.

Even though California is blessed with plentiful sources of hydro, geothermal, wind and solar resources, electricity rates are already climbing as a result of adding renewable power generation. California retail electricity rates are now 12.5 cents per kilowatt-hour, significantly higher than all other western states, and 28 percent over the national average.

Another rule in the 2006 bill would cut by 10 percent the carbon intensity of gasoline and other fuels. Carbon intensity is a measure of the amount of carbon emitted over a fuel’s life cycle, including extraction, refining, transport and combustion. The new limit would discourage Valero and other refiners from using crude that comes from Canada’s oil sands, extracted in an energy-intensive process, and ethanol that comes from plants using coal-fired power. This would likely increase the price consumers pay at the pump.

According to Valero, compliance with the 2006 bill’s low-carbon fuels standard is essentially an electric-car mandate. This is an interesting assertion when coupled with a new report from J.D. Power & Associates that says the sales potential of electric and hybrid vehicles is “over-hyped” and “more hope than reality.” Globally, electric and hybrid vehicles will make up little more than 7 percent of all passenger-vehicle sales by 2020, the firm estimates.  J.D. Power says the research shows that many potential buyers are not ready to make the leap. Concerns include the cars’ reliability, power and performance, and how far all-electric models can travel on a single charge — so-called “range anxiety.” The significant price premium for electric and hybrid vehicles is another major sticking point despite the long-term savings consumers can expect from buying less gasoline

The 2006 bill’s most expansive element, which is to be adopted in December, amounts to a cap on the emissions of large industrial facilities such as Valero’s. As in Europe’s cap-and-trade market, California would issue emission permits, which companies would then be free to buy and sell on the open market as a way to cut costs. The design of California’s cap-and-trade system is still under debate, but it will likely begin by granting free permits and phase in auctioned permits over the next decade.

As the world’s eighth-largest economy, California is often a bellwether state on many issues. So while oil companies argue that the cost of all this regulation and capital spending on alternative energy will increase the cost of energy to consumers in California. Environmentalists and pragmatists argue that higher cost fossil fuels will lead to a drop in consumption and combustion, which is exactly what the state’s 2006 global warming law is designed to accomplish.

An interesting hypothesis – but not one that I believe we as a society are ready to accept.  (See you at the polls in two years!)