Highlights from the Silicon Valley Energy Summit

Professor Jacqueline Peel, Visiting Scholar, Stanford Water in the West

The 2013 Silicon Valley Energy Summit was hosted by the Precourt Energy Efficiency Center on June 28, 2013.  The Summit Agenda promised a high-powered line-up of federal and state agency officials, business people, investors and practitioners talking about developments in the energy policy field. The timing of the Summit was propitious, with President Obama’s announcement a few days earlier on his new plan for combating climate change relying on powers of the administration. As James Sweeney, Director of the Precourt Energy Efficiency Center, noted in his opening address, essentially all of the President’s Climate Action Plan deals with energy-related measures. California, with its leadership on regulatory initiatives such as cap-and-trade, vehicle emissions etc, was also well-placed in Sweeney’s view to influence national policy. This would continue a well-established pattern in the environmental sphere where initiatives start out in California, are tested at the state level, picked up by other states and eventually adopted as a national standard by the federal government.

Professor Sweeney’s introduction was followed by two keynote addresses that were the highlight of the day’s proceedings. The first took the form of a conversation between James Sweeney and Senator Jeff Bingaman, former U.S. Senator and Chair of the Senate Energy Committee, who is now a Distinguished Fellow with the Steve-Taylor Center for Energy Policy and Finance at Stanford. Their conversation covered a wide territory of developments in energy policy but five points were particularly notable:

• Senator Bingaman’s opinion that with the issue of the President’s plan on climate change the administration has now firmly opted for a regulatory approach, rather than a legislative approach, to tackling emissions from the energy sector.
• The Senator’s view that the further the federal EPA goes down the road of regulation, the less likely it is that Congress will act, with the possible exception of legislating some form of carbon tax but then only as part of a broader tax reform agenda.
• That comprehensive tax reform is unlikely to be taken up by the current Congress but might be a possibility for the next Congress with the best hope for reform being to follow the model of a bipartisan Senate Bill sent to the House as has occurred in the context of immigration reform.
• The Senator said that it is unclear at this stage what role the states will play in implementing new standards for electric utilities announced in the President’s Climate Plan. It could be that states are involved in preparing new SIPs or it may be that all reforms are led by the federal government.
• Part of the blockage in Congress on climate change/energy-related issues is that climate change denialism has become a kind of a litmus test for Republican Congressman to avoid being labelled “moderates” and hence being vulnerable to challenge for not being “true conservatives”.

The following keynote address delivered by Steven Chu, former Secretary of the Department of Energy, was both inspiring and entertaining. Dr Chu’s topic was “Energy Challenges and Opportunities”. He focused on how technological development in the United States in the energy field has the potential to position the country as an industrial leader in the emerging low carbon economy. He used the example of the transition from horse-drawn carriages to motor vehicles to highlight the recurring pattern of resistance to new technologies from embedded interests in old technologies, as well as the link between technological change and infrastructure development. Importantly, from my vantage point of someone interested in climate change adaptation, Dr Chu also drew the link between technological development and the need for change in the energy sphere to meet the climate change challenge. In this context, he discussed the rising costs of adaptation for the United States (e.g. natural disaster losses and flood insurance).

Dr Chu then turned to the topic of clean energy, alternative energy sources. He pointed out that most of the challenges are not in the technological sphere but so-called “soft costs”: bureaucracy and the need for policy innovation. He made a projection that the cost of rooftop solar energy and energy storage systems will decrease between 3 to 4 times within the next 10-15 years. This technology could be as disruptive to electricity generation and distribution as the internet was to publishing and entertainment. Dr Chu noted the need to align utility company incentives with the deployment of solar energy e.g. through offering customers roof-top electricity and in-home energy storage owned, installed and maintained by the utility company.

Finally Dr Chu stressed that although energy innovation offers the United States opportunities to become an industrial leader in the low carbon economy there is also a moral responsibility to those who will be most affected by climate change albeit having contributed the least to its causes in terms of greenhouse gas emissions. He quoted the Native American saying: “We do not inherit the earth from our ancestors, we borrow it from our children.”  Dr Chu concluded his keynote address with a moving video of Carl Sagan’s “Pale Blue Dot”.

Following the plenary sessions, the Summit split into several sessions of parallel panels. Professor Peel attended two of the panels: “Mitigating California Carbon” and “Can Silicon Valley avoid Water Shortages”.

The first panel featured a conversation between representatives of interests at opposite ends of the spectrum of views in terms of mitigating carbon (and climate change) in California. On one side, the panel included Catherine Reheis-Boyd of the Western States Petroleum Association (WSPA). On the other side, the panel featured Virgil Welch from the California Air Resources Board, the lead agency responsible for implementing emissions reduction measures under AB32. The conversation was moderated by Jeff Byron from Cleantech Open. From the viewpoint of the WSPA, Ms Reheis-Boyd highlighted perceived problems with the Californian cap-and-trade system but more particularly the Low Carbon Fuel Standard (LCFS). While she claimed that member companies agree on the importance of addressing climate change and support the use of market measures to do so, there is concern that the Californian policies may be setting the state up to experience a “fuel cliff” rather than a bridge to the future low carbon economy. Particular concerns are with the trade exposure provisions under the cap-and-trade scheme and the lack of ethanol projected to be available to meet requirements under the LCFS.

By contrast, Mr Welch from CARB stressed the agency’s view that regulatory push was needed to force regulated companies to innovate. He cited the example of the Pavley fuel efficiency standards which companies protested they would be unable to meet but subsequently turned out to be able to do so. Mr Welch also discussed potential external influences of the cap-and-trade scheme both through linkages to other schemes (e.g. Quebec) and also through soft regulatory harmonization (e.g. Chinese regulators modelling their pilot schemes on Californian regulations). He also discussed the potential for state involvement in meeting the new federal standards for electric utilities proposed in the President’s Climate Plan. Mr Welch pointed to section 114(d) of the Clean Air Act as a possible avenue for allowing states to meet the new federal standards by developing their own programs. This could provide an impetus for states beyond California to adopt the Californian cap-and-trade program as a way of meeting the new federal standards.

The second panel on water was one I had anticipated would be very relevant to Water in the West and particularly ongoing work on the water-energy nexus. Disappointingly, the linkages between water and energy were not the focus of this panel that focused on more general issues of where California’s water comes from and policy options for ensuring a sustainable water future in the state. The best presentation of the panel was given by Fernando Paludi from the West Basin Municipal Water District. He outlined the District’s approach of redundant planning to prevent water shortage i.e. reliability through diversification, with a focus on reducing imported water reliance (and associated energy use). He discussed how the low-hanging fruit associated with efficiency gains has largely been plucked and hence how the District is turning to technology for future savings. The main strategy employed in his District is recycled water producing “designer” waters customised and tailored to specific end users. Mr Paludi also briefly commented on the water-energy nexus saying it was becoming more and more evident. But getting energy companies to understand the embedded energy cost in water in order for utilities to claim benefits from water conservation was a major hurdle.

The Summit concluded with a final “conversation” on energy policy between Dr Chu and Senator Bingaman, moderated by William Perry former Secretary for Defense. The conversation focused on several big picture issues in the energy field including the potential for North American energy independence given the boom in natural gas production, the fracking technological revolution and the best approach to dealing with some of the impacts such as methane release, the potential for new clean(er) energy developments such as use of natural gas for vehicle fuel and what the federal government role should be in improving energy efficiency in the building sector.