Breakthrough: Why California's Energy Mandate Failure Matters

By Greg Nemet, Breakthrough colleague and University of Wisconsin energy expert.

As has become increasingly clear over the past couple of years, California appears unlikely to meet its Renewables Portfolio Standard targets for 2010. See this report in the Chronicle and the California Public Utility Commissions quarterly RPS report to the legislature.

Missing the renewables obligation is important -- not just because of the non-renewable electricity we will be using as a result -- but because of the signal it will send to policy makers, investors, and consumers on California and elsewhere. How the state manages missing the targets could have big impact on future policies and the incentives they create for businesses and consumers to change the way we use and produce energy.

There is no doubt California's targets are ambitious and lead the world. In missing the targets we should not lose sight of the five or so gigawatts of renewables that have been installed in the past 5 years since the original RPS law was signed. This increase represents billions of dollars in public and private investment and the electricity provided is roughly equivalent to a few new coal, gas or nuclear plants that we do not now need to build. If the 2010 goal ends up being achieved in 2013, waiting 3 more years to reach 20% does not seem a severe reason for disappointment, not in itself a policy failure. But that these targets are ambitious and that California is looked at globally as a leader in emerging energy policies is precisely why missing the targets could have important implications.

Missing the California RPS targets matters because it affects the credibility of future policies in the energy area in general - not only for renewables. It sends a signal to utilities, entrepreneurs, investors, consumers, and policy makers in other states, and national governments. What matters next *how* the CEC, the CPUC and state legislators handle missing the target. Several alternatives exists -- such as how fines are imposed, whether these can be passed on to consumers, and whether they are heightened in future periods. The timing and level of the targets themselves can be adjusted. Beyond these specifics, whether California appears to back down from its ambitious targets or reaffirms its commitment will send a powerful message.

California's stance is important because the key public policies that will shape our future energy policy commit the private sector to making substantial changes to our use and production of energy over a long period of time. Firms will only make these changes if they perceive that the targets being set by governments are credible - in short, that businesses and consumers will be held accountable if they fail to respond. This credibility of government actions is central to the revised CAFE standards passed in last year's federal energy bill, the greenhouse gas reduction targets agreed to under the Kyoto Protocol, and the renewable portfolio standards that have now been passed by more than two dozen states. The long-term greenhouse gas reduction proposals by both Presidential candidates, and even more stringently by European governments, rely heavily on perceptions of government's intentions. Crucial initiatives such as these threaten to lose their teeth if it becomes apparent that governments treat them more as aspirational targets than as serious commitments.

It may be true that ambitious targets open up possibilities by making strong, but less ambitious proposals seem moderate and even modest in comparison. But they also carry the risk of reducing credibility in future periods and in other areas if they are not backed up with implementation. The communication and the specific implementation measures that are announced in California once the 2010 targets are missed will determine whether the California RPS reinforces the incentives created by other proposals or an example that weakens credibility in long term targets.

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