California has a long history of making great leaps to push the envelope on standards, like seat belts, catalytic converters, emissions, and mileage, which are then adopted nationally and globally. It looks like it is going to be no different with electric power.
In 2006 governor Arnold Schwarzenegger signed into law AB 32, the Global Warming Solutions Act, which mandates the most ambitious alternative energy goals in the country.
Four years later, many are asking whether this groundbreaking legislation has paved the emerald road to the future, or will condemn us to economic stagnation.
This is crucial for all of us, because with 12% of the US population, and 13% of the GDP, the Land of Fruits and Nuts is the world's eighth largest economy.
The law seeks to implement the provisions of the Kyoko Protocols through reducing the state's greenhouse gas emissions at least 30% by 2020, and 80% by 2050. Passage of the legislation was no doubt driven by the Golden State's location on the front line of global warming.
It has been plagued with draughts, seen the Sierra snowpack that supplies its fresh water shrink, and suffered a 50% jump in major forest fires. Some 840 miles of coastline are at risk from any rise in the sea level.
California is already the most energy efficient state in the nation, cutting its bill by $50 billion over the past 35 years. While per capita US energy consumption has jumped 50%, California's has remained flat, thanks in part to a coastal geography that never gets too hot or too cold.
Priority one is to eject the state's stubborn 38 million drivers out of their 24 million cars, which are slated to produce 33% of the carbon savings.
Hybrids account for 2%, more than anywhere else, and that number is set to soar thanks to huge subsidies and a profusion of new models about to hit the market.
Big chunks of Obama's stimulus bill were earmarked to pay for a bullet train line from San Francisco to San Diego and out to Las Vegas, BART extensions, and new light rail lines. Insulation, sealing heat leaks, and changing to fluorescent light bulbs in every home will produce and another 15% of the carbon savings at a cost of $1,500 per residence.
But that will require giving $4 billion to 12 million low income families.
Rebuilding the power generation mix delivers another 15% in savings and includes converting all coal fired plants to natural gas, which now supply 16% of the state's power.
On the supply side, wind and solar figure large in the state's future, as alternatives are scheduled to jump from 12% of the power supply to 33% in ten years (click here for more depth at http://www.energy.ca.gov/renewables/index.html ).
That means installing panels on one million roofs. Although not in the calculations, scrapping California's 32 year old ban on new nuclear power generation is a near certainty.
The state's beleaguered power companies, like Pacific Gas & Electric (PGE) and Southern California Edison (EIX), claim these targets are impossible, but are crisscrossing the west with transmissions lines to import every flavor of alternative power from neighboring states. None of this will come cheap.
The total tab is around $60 billion, and 30% higher electricity rates that the new regime will deliver will drive most energy intensive businesses out of the state.
Not an easy sell in a place that has lost a million jobs in the past two years.
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Total California Employment
Many venture capitalists and investors argue this can be offset by building entire new industries. Alternative energy technology can be sold globally, and Silicon Valley is gunning to wrestle control of the auto industry away from Detroit.
This is all in a tradition of a state that constantly reinvents itself. During my lifetime, I have seen the economy evolve from farming to defense, microprocessors, personal computers, software, mobile, search, and now Iphones and Ipads.
It's all a huge risk, but one a majority of the state's residents is willing to take, as AB 32 is one of the few significant pieces of legislation that has passed in Sacramento in the past decade. And the cost of not taking such bold action may be greater.
By. Mad Hedge Fund Trader
