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CPUC “Climate Dividends” Good for FY2012, but Energy Efficiency Ideal for FY2013-2020

California’s landmark cap and trade program kicked off successfully last week. In its first auction, all available allowances sold out at a healthy price. Now that this tremendous source of revenue is proven and tangible, stakeholders across the state have begun to make their pitch for the best use of the money.

While the California legislature will determine how to spend its auction proceeds in the first half of 2013, the California Public Utilities Commission (CPUC) has already announced its plan for how investor-owned utilities (IOUs) will invest the revenue from their pool of the proceeds. As expected, the CPUC decision adhered to the guidelines outlined in a California budget bill in June (SB1018) which mandated utilities to return at least 85 percent of their revenues to electricity purchasers through dividends.

Although we are pleased that the CPUC has taken steps to give residential, small business, and industrial customers direct relief from electricity price hikes this year, we hope that they’ll consider a new approach and actually lower those customers’ energy bills by investing in energy efficiency programs during the next fiscal year and beyond. That’s what the Northeastern states participating in the country’s only other cap and trade program, the Regional Greenhouse Gas Initiative (RGGI), have done, and to great effect.

Massachusetts is the poster child of the RGGI energy efficiency strategy. From 2009 to 2011 Massachusetts received more than $172 million in RGGI auction proceeds. In 2008, Massachusetts passed the Green Communities Act, which mandated that utility companies invest in all energy savings measures that are cost-effective or cheaper than increased electricity purchases. To accomplish this goal, the state formed the Massachusetts Energy Efficiency Advisory Council to determine a plan for investing funds from a system benefits charge and RGGI auction proceeds. The resulting plan for 2010-2012 has been wildly successful. In 2012, the American Council for an Energy Efficiency Economy (ACEEE) gave Massachusetts the highest ranking for its State Energy Efficiency Scorecard for the second year in a row.

Strategic investment of these funds in energy efficiency programs has created 3,800 jobs and generated $500 million in economic activity for the state since 2008. Over the three years, Massachusetts invested $1.7 billion in residential, low-income, and commercial and industrial energy efficiency. Among other things, these investments provided incentives for over 1 million residential consumers to increase energy efficiency in their homes. By creating jobs in energy efficiency services, increasing savings on monthly energy bills and increasing discretionary spending throughout the economy, these programs have grown Massachusetts’ gross state product (GSP) by $6.40 for every $1 of investment.

Further, the utility-administered energy efficiency programs will save consumers $6 billion on their energy bills over the lifetime of the efficiency upgrades and will help Massachusetts achieve its goal of meeting 30 percent of its energy needs from energy savings by 2020.

California also has an impressive record of energy efficiency programs. The CPUC itself has committed to carrying out a $2 billion energy efficiency plan for the next two years, and we trail only Massachusetts in the ACEEE State Energy Efficiency Scorecard. But that’s no reason for our state to overlook the chance to further bolster energy efficiency for households, businesses, and manufacturing firms through strategic investment of the AB32 revenues. A UC Berkeley study from earlier this spring revealed that investments in energy efficiency would bring more bang for their buck in California than most alternatives, including direct rebates to consumers. Biannual “climate dividends” paid out to California’s retail electricity consumers would offset higher costs created by the cap and trade program, but households will only receive $60 a year. Energy efficiency investments, on the other hand would pay off on a monthly basis as electricity demands decrease in households and buildings across the state.

Industrial efficiency programs, in particular, would help to offset the temporarily higher costs that may be experienced by California manufacturers and other industrial, “carbon-intensive” businesses in the state. The National Association of Manufacturers (NAM), the parent group of one of AB32’s staunchest opponents, the California Manufacturers and Technology Association (CMTA), recognizes how critical industrial efficiency has become to manufacturing competitiveness across the U.S., not just in California. In a handbook NAM produced jointly with the Alliance to Save Energy, the national manufacturing group argued that “Being better energy managers is important not only for each company, but is also an essential component in achieving a low-inflation, high-growth economy.” In fact, NAM points out that rising costs of energy can actually offer opportunities for manufacturers to become more competitive, by raising productivity, taking advantage of new markets for energy-efficient products, and ensuring better community relations.

It’s too late to change the IOU’s direction this year: their use of cap and trade revenue for the fiscal year 2012-2013 is restricted by SB1018 as noted above. And that’s not a bad thing: California consumers will see the direct positive impact of AB32 when they open their rebate checks from the state’s utilities. But beyond this year, the CPUC would be wise to take a lesson from the East Coast, and to reconsider its proposal to continue turning auction revenues into rebates through the year 2020. Instead, the CPUC should consider investing a significant percent of these proceeds from FY2013-2020 into smart, targeted energy efficiency programs, especially for the state’s industrial consumers. That way, they’ll not only lower consumer energy bills; they’ll also help create jobs, stimulate local economies through increased discretionary spending, help California manufacturers and businesses become more lean and competitive, and bring our state’s greenhouse gas emissions down even further.

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