Opportunities for States in a Carbon-Constrained World

By JIM DIPESO, REP’s policy director

AN HISTORICAL DOCUMENT: Jim delivered this speech at the West Virginia Conference on the Environment in Charleston, West Virginia, on October 28, 2003.

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Good morning, I am Jim DiPeso, from Republicans for Environmental Protection. It’s a pleasure to be here in West Virginia. West Virginia is the birthplace of our oldest son, who was born up in Clarksburg 25 years ago.

One thing that West Virginia and my home state of Washington have in common is that they are the only two states that have designated the rhododendron as the state flower.

Republicans for Environmental Protection. What is that, some kind of oxymoron, like diet ice cream?

All kidding aside, we’re Republicans who believe that conservation is conservative. We also believe that the environment should not be a partisan issue. We want to see Republicans and Democrats compete to offer the most practical, effective environmental solutions because they’re good for our states and communities. We want bipartisan majorities voting for good environmental policy – as we saw a generation ago.

“Jobs vs. the environment is a false choice.” That’s from the environmental platform of my party’s newest political star, Governor-elect Arnold Schwarzenegger.

So it is with global warming. We are convinced that the preponderance of the scientific evidence shows that human activities are altering the climate. This has enormous implications for our nation’s security, prosperity, and health. We’re also convinced that this is a manageable issue and dealing with it will bring tangible economic benefits. All the states, including West Virginia, have a role to play.

It is in West Virginia’s interest to be in the game. This issue will be dealt with, if not tomorrow, then in the near future. It’s better to be at the table when the solutions are hammered out and the rules are drafted.

The question is, who will pick up the ball? This week, the Senate will vote down Senator McCain’s Climate Stewardship Act. For a lot of reasons, the federal government is not dealing with this issue as aggressively as it should.

But many states are, both alone and in concert. The states are the laboratories where interesting, market-oriented ideas for dealing with global warming will be tested and perfected, both reducing greenhouse gas emissions and yielding spin-off benefits.

Now, states can’t do it all. We still need a national and international strategy for handling global warming. But the states are taking important, valuable steps.

Not every state will take the same approach to climate solutions, and that’s as it should be. What works for Nevada probably wouldn’t be a good fit for West Virginia, and vice versa.

States have different reasons for adopting climate policies. Some see economic opportunities in promoting energy efficiency and new energy technologies. That’s why Ohio and Michigan are investing in fuel cells.

Others are seeking new markets for their products. That’s why Minnesota created a market for ethanol in their fair state. Still others want to get ahead of the game and be ready for the day when cap-and-trade legislation is passed and markets in carbon emissions allowances trading are developed. The latter reason is, I believe, very compelling.

Let me briefly survey what other states are doing in order to offer West Virginia some food for thought.

I’ll start with energy efficiency. We always start with energy efficiency because efficiency must be the foundation of our energy and climate policies. First, let’s be clear on what energy efficiency is. Forget those images of shivering in the dark in a sweater. That’s deprivation and we’re not interested in deprivation. Energy efficiency is simply this — getting the most value for each dollar spent on energy services.

The benefits are numerous – business cost savings, reduced burdens on the taxpayers, improved public health. Since 1973, the U.S. economy has saved $430 billion as a result of energy efficiency. That’s $430 billion we are no longer spending on wasted energy.

In a world of CO2 caps, energy efficiency can create salable allowances in carbon emissions reductions.

Energy efficiency tax incentives can increase the market share of new technologies that people may not be familiar with and which may have up-front cost issues. Rising market share feeds on itself by attracting the interest of retailers, equipment specifiers, and installers, leading to greater market share.

And at a certain point, the market for new technologies can be nudged up to a level where it can fend for itself and the state can safely withdraw incentives.

You have to use the Goldilocks approach to energy efficiency incentives. Not too high and not too low. You want to move the market, but you don’t want to write checks to free riders.

And, the incentives need to be given time to work, five to 10 years. The Pacific Northwest, for example, has worked the better part of two decades to increase the market for compact fluorescent lighting. The market share is now about 10 percent, and in 2002, 75 percent of CFLs purchased in the Northwest were purchased without the use of incentives. That’s very encouraging.

A good place to study energy efficiency incentives is Oregon. In Oregon, income tax credits are available for a wide range of highly efficient appliances, HVAC equipment, and renewable energy systems for homeowners and businesses.

It’s important to understand that Oregon has no sales tax. Woe unto the Oregon politician who ever proposes one! The income tax is their point of leverage. Oregon makes its incentives easy to use. Vendors help purchasers fill out the income tax credit application at the point of purchase.

A good example of a recent success is a $350 credit for 90 percent efficient furnaces with electronically controlled fan motors. In three months, the Oregon market share of these furnaces rose from 35 percent to 52 percent. Some dealers even stopped stocking furnaces that did not qualify for the credit.

Oregon’s program has broad, bipartisan support. Republicans, especially, like the targeted tax relief.

I know West Virginia has budget issues. Oregon does too. But even in the face of a huge budget shortfall, Oregon has kept its residential credits program intact. The Legislature did cut back the business credits, but only for two years and only by 20 percent. That’s how popular these credits are.

Oregon is not out there by its lonesome. The state tax incentives work in concert with public purpose funding from the Energy Trust of Oregon and with the Northwest Energy Efficiency Alliance, a consortium of utilities which funds efficiency measures.

In the last 20 years, the Northwest has saved 2,600 megawatts of energy, 1,100 megawatts from codes and standards and 1,500 megawatts from incentives.

And this has taken place in a region that historically has had low energy costs, because the Northwest obtains half its electrical energy from the federal Columbia River system, a lot of cheap hydro. Even with low energy costs, energy efficiency programs can be made to work.

Efficiency reduces CO2 emissions. When cap-and-trade comes, those reductions will have economic value as marketable assets.

A way to get ready for that market is to establish carbon emissions reduction registries.

A number of states have taken this route. For example, New Hampshire opened a registry in 1999 giving companies, organizations and individuals the option of reporting in a standardized way their actions that reduce greenhouse gas emissions

One of the entities that registered recently was the Society for Protection of New Hampshire Forests.

The society registered a 17 percent cut in greenhouse gas emissions at its Concord headquarters through lighting upgrades, solar panels, and other steps. I visited the building last month and it’s beautifully designed and built. The building will save the organization a lot of money. And when emissions trading begins, that 17 percent reduction reported in the New Hampshire registry will be the basis of a marketable asset.

Wisconsin’s registry, which opened this year, was adopted with motives similar to New Hampshire’s — plan ahead and give your state’s businesses a head start in preparing for allowances trading markets.

Wisconsin shows the benefit of early actions. In 1986, Wisconsin passed state acid rain legislation, with assurances that companies would receive credit under future federal legislation to reduce SO2 emissions. That’s exactly what happened.

As more states adopt cap-and-trade for carbon dioxide, as New Hampshire and Massachusetts have done for power plants, markets will develop. Registries will be essential for participating in those markets.

Governor Pataki in New York has proposed a regional CO2 cap-and-trade program in the Northeast. His fellow Northeastern governors are interested in working with him to bring it about.

Should West Virginia join in those discussions? The state would be well served by taking a seat at that table.

What’s in it for West Virginia? Let’s start with biological sequestration. Sequestration is not a complete answer, but there’s a place for it. Since West Virginia is more than 80 percent forested, and three-fifths of those forests are in private ownership, selling carbon sequestration services could be one important niche for West Virginia. Perhaps someday, our distinguished luncheon speaker (Dale Heydlauff , vice president at American Electric Power) will be writing checks to West Virginia timberland owners for the privilege of storing carbon.

Other forested states are giving this possibility some thought. In 2001, the Oregon Legislature passed House Bill 2200, which directs the state forester to develop a carbon offset accounting system. The state forester also is authorized to enter into agreements with any non-federal timberland owners to register, market, transfer, or sell carbon offsets. Proceeds of any sale would be split 50-50 between the landowner and the state forester’s office.

Of course, there are issues associated with biological sequestration. How do you ensure that carbon stored in forest trees and soils stays put? How do you assure that you’re achieving emissions reductions that otherwise would not have occurred naturally? These issues will have to be resolved through standards and verification protocols to ensure that sequestration is actually taking place as advertised and that sequestration services are therefore worth paying for.

Renewable energy technologies achieve emissions reductions that, again, can serve as marketable assets.

How do you push forward with wind, biomass and other renewable energy sources? Energy portfolio standards and net metering. They build markets for energy technologies with desirable environmental and economic attributes.

Energy portfolio standards have worked well to diversify energy choices in states that have adopted them and create new business opportunities. Texas is a huge oil and gas state, but is also a national leader in wind energy, thanks to the portfolio standard that then-Governor Bush signed into law.

Nevada has the one of the most ambitious energy portfolio standards in the nation. The state is interested in developing its solar and geothermal resources as a way to diversify its economy.

California has an energy portfolio standard with a 2017 deadline. But Governor-elect Schwarzenegger has proposed moving that deadline up to 2010. Can California do that? Maybe, maybe not. But the important thing is that Mr. Schwarzenegger said we can do this, we should strive for it. That’s leadership. We believe that Mr. Bush should talk to Mr. Schwarzenegger to learn about showing more leadership in this arena.

An energy portfolio standard could help develop West Virginia’s very good wind and biomass resources.

I was very pleased to hear our luncheon speaker talk about co-firing biomass in coal-fired power plants. Co-firing could be an attractive economic option. At a co-firing rate of 15 percent, greenhouse gas emissions can be cut 18 percent, along with criteria air pollutants. That would be important if four-pollutant legislation is passed or if Eliot Spitzer is successful in his legal challenge against the latest New Source Review revisions.

Net metering can help enable homeowners installing solar panels. It’s true that solar is expensive, about $4 per watt. But an Italian semiconductor manufacturer, STMicroelectronics, has announced a technological discovery that could enable them to produce solar cells at 20 cents a watt. That would be a game changer.

One more idea for what states can do is procurement. Governments buy a lot of goods and services and are in a good position to build markets for desirable products and technologies, which give the taxpayers good value if they purchase efficiency.

Just recently, the governors of Washington, Oregon, and California announced a joint climate strategy. One of the things they plan to do is buy energy-efficient replacement tires for fleet vehicles.

Energy efficiency incentives, carbon emissions reduction registries, biological sequestration, an energy portfolio standard, and procurement policies can be elements of a West Virginia climate policy that will position the state to take advantage of allowances trading markets that carbon emissions caps will create.

At some point, carbon emissions will be capped. We believe it is inevitable. It’s important to plan ahead, set some goals, and develop a climate plan suited to West Virginia’s needs and taking advantage of the economic opportunities of energy efficiency, renewable energy, and biological sequestration.

Other states are doing interesting things to get ready, trying out good ideas and serving as test beds.

There is an important place at the table for West Virginia. We can solve the climate problem and take advantage of the economic opportunities more effectively and more inclusively if West Virginia takes its place at the table.

So, you’re invited, come on down, and thank you very much.

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